Is it more advantageous to take all of yearly distribution in one go, or once every month?

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csantiago
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Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by csantiago »

I’m playing around with estimates and future withdrawal rates between 3% and 5% when a thought struck me. Would it be “better” (ie would the principal grow more, all other rates being equal) if the entire yearly withdrawal was taken at once, or spread out over 12 months? Seems to me like spreading it out would be wiser since it’s more capital in the markets BUT at this phase losing money in the market is riskier and thus withdrawing the full amount in one go makes sense.

What say you?
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birdog
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by birdog »

It’s a good question and one I’ve been asking myself recently. My current plan is to do quarterly withdrawals but I’m looking forward to hearing rational for why annual, quarterly or monthly is better/worse. My plan for quarterly is that at least half of my withdrawal amount will come from the total stock market fund (VTI) dividend that is in my taxable account and that gets paid out quarterly. The remaining dollars needed will either come from VTI shares sold, or if the market is down, from my cash cushion. (I won’t withdrawal from tax-advantaged accounts for several years.) My only holding in taxable is VTI and I plan to discontinue the DRIP in that fund and base my withdrawals around the quarterly dividend payment from that fund. It seems to make the most sense in my case, anyway.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by dkturner »

birdog wrote: Mon Jan 18, 2021 6:42 am It’s a good question and one I’ve been asking myself recently. My current plan is to do quarterly withdrawals but I’m looking forward to hearing rational for why annual, quarterly or monthly is better/worse.
If you have the ability to wait until the end of the year to take your RMD you have two advantages: (1) The funds you have to withdraw will continue to work for you for 11+ months and (2) you can automatically satisfy your federal and (in some cases) state income tax estimated payments in one lump sum at the end of the year.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by birdog »

dkturner wrote: Mon Jan 18, 2021 6:57 am
birdog wrote: Mon Jan 18, 2021 6:42 am It’s a good question and one I’ve been asking myself recently. My current plan is to do quarterly withdrawals but I’m looking forward to hearing rational for why annual, quarterly or monthly is better/worse.
If you have the ability to wait until the end of the year to take your RMD you have two advantages: (1) The funds you have to withdraw will continue to work for you for 11+ months and (2) you can automatically satisfy your federal and (in some cases) state income tax estimated payments in one lump sum at the end of the year.
Yes but I’m not referring to RMDs. I’m referring to money, taken from my taxable account, that needs to come out prior to the end of the year so that I have cash to pay current bills with.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by KlangFool »

OP,

Do you care how much taxes that you pay? If yes, your withdrawal has nothing to do with your current expenses.

I keep 3 years of expense in my emergency fund. I can Roth convert and withdraw when and whatever amount that is most tax efficient.

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vineviz
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by vineviz »

csantiago wrote: Mon Jan 18, 2021 5:40 am I’m playing around with estimates and future withdrawal rates between 3% and 5% when a thought struck me. Would it be “better” (ie would the principal grow more, all other rates being equal) if the entire yearly withdrawal was taken at once, or spread out over 12 months? Seems to me like spreading it out would be wiser since it’s more capital in the markets BUT at this phase losing money in the market is riskier and thus withdrawing the full amount in one go makes sense.
The most solid arguments would be in favor of withdrawing the money when you need to spend it. It does, as you say, keep the money invested somewhat longer.

Spreading out the withdrawals also REDUCES your risk somewhat by reducing the chances of taking a (single) big withdrawal during a particularly time to do it. Think of it as reverse dollar cost averaging, in a way.

I just did a quick simulation, and someone who retired on 12/31/1999 and using a withdrawal rate of 5% would have a portfolio that is 5% larger if they'd taken their withdrawals in equal installments at the beginning of each month instead of at the beginning of each year. That's basically an extra year's worth of expenses.

I'd say that's close enough that you could make a case for doing it either way (especially if you had to execute the withdrawals manually, say, as opposed to being able to automate them), but from a purely rational standpoint a monthly or quarterly withdrawal strategy would typically be the optimal one.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by tennisplyr »

dkturner wrote: Mon Jan 18, 2021 6:57 am
birdog wrote: Mon Jan 18, 2021 6:42 am It’s a good question and one I’ve been asking myself recently. My current plan is to do quarterly withdrawals but I’m looking forward to hearing rational for why annual, quarterly or monthly is better/worse.
If you have the ability to wait until the end of the year to take your RMD you have two advantages: (1) The funds you have to withdraw will continue to work for you for 11+ months and (2) you can automatically satisfy your federal and (in some cases) state income tax estimated payments in one lump sum at the end of the year.
Yes but what if the market is down -10%
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by Broken Man 1999 »

DW's expenses are pretty much the same each month, so she she has an automatic monthly distribution from her TIRA.

My expenses are lumpy, so I manually set up a distribution from my TIRA to cover the next month's bills.

We don't distribute until we need to pay bills.

Works for us.

Is distributing monthly or yearly advantageous? It depends on what the market is doing. Sometimes one might be more advantageous, sometimes the other might be more advantageous.

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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by KlangFool »

OP,

You may want to check out this thread.

viewtopic.php?t=87471

<<How to pay ZERO taxes in retirement with 6-figure expenses>>


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ipdiddly
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by ipdiddly »

However you choose to take withdrawals, it is basically a form of market timing. If you take one large withdrawal at the beginning of the year and the market is higher at the end of the year, you feel you missed out. If the market is lower at the end of the year, you pat yourself on the back. If you take your annual withdrawal at the end of the year and the market drops significantly in Nov/Dec, then you go ouch! If you take withdrawals quarterly, what do you do if the quarter ends like March, 2020, down horrendously? Do you still take the withdrawal or wait?
I don't think there is a right or wrong answer to this question. It is more about personal comfort and preference. Setting up periodic payments, whether monthly or quarterly, is likely the best course, if for no other reason than to keep you from tinkering too much.
I am facing this same question this year with respect to my and my spouse's IRA's since we have to take RMD's. I haven't decided what we will do.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by sixtyforty »

Essentially, if the market goes up, then taking monthly withdrawals allows your funds stay invested longer. In a downward trending market, taking a one time distribution probably prevents losses. Great, except you don't know what the market is going to do. History shows that the market tends to rise more than it falls, so from a probability standpoint, it would seem monthly has an edge. OTOH, if one has a low risk tolerance, then I can see where taking a one time distribution might be better, since you won't have to concern yourself bout market fluctuations until the next withdrawal. I opted for auto withdrawals every month and it's worked well so far.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by sport »

Here is a different outlook on this question: It is often suggested that people should not invest in the stock market if they will need the money in less than 5 years. Some people even say 10 years. Therefore, if this advice is correct, the withdrawals you plan to make for the year, and even the next few years should not be in the stock market. So, you should have a bond fund, or CDs, or such available for withdrawals. One way to implement this would be to withdraw from either a bond fund or a stock fund depending on which is over your target allocation. This would amount to "rebalancing" every time you withdraw some cash. This method would also protect you from having to withdraw while the market is down, yet it lets you participate in market gains. The frequency of distribution is less important.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by birdog »

sixtyforty wrote: Mon Jan 18, 2021 11:49 am Essentially, if the market goes up, then taking monthly withdrawals allows your funds stay invested longer. In a downward trending market, taking a one time distribution probably prevents losses. Great, except you don't know what the market is going to do. History shows that the market tends to rise more than it falls, so from a probability standpoint, it would seem monthly has an edge. OTOH, if one has a low risk tolerance, then I can see where taking a one time distribution might be better, since you won't have to concern yourself bout market fluctuations until the next withdrawal. I opted for auto withdrawals every month and it's worked well so far.
So does that mean that mutual fund shares are automatically sold and the proceeds auto-transferred to a checking account each month?
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by geerhardusvos »

Keep your money in the market. Withdraw as you need. Weekly, monthly, quarterly, doesn’t make a ton of difference, but I will likely do monthly when I’m relying on my portfolio.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by birdog »

geerhardusvos wrote: Mon Jan 18, 2021 12:22 pm Keep your money in the market. Withdraw as you need. Weekly, monthly, quarterly, doesn’t make a ton of difference, but I will likely do monthly when I’m relying on my portfolio.
Will you discontinue DRIP in taxable and draw dividends from that account or leave DRIP enabled and just sell shares? I thought it made little sense to be buying and selling shares at the same time in taxable so it seems intuitive to me to cancel the DRIP but I know not everyone does that.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by geerhardusvos »

birdog wrote: Mon Jan 18, 2021 12:26 pm
geerhardusvos wrote: Mon Jan 18, 2021 12:22 pm Keep your money in the market. Withdraw as you need. Weekly, monthly, quarterly, doesn’t make a ton of difference, but I will likely do monthly when I’m relying on my portfolio.
Will you discontinue DRIP in taxable and draw dividends from that account or leave DRIP enabled and just sell shares? I thought it made little sense to be buying and selling shares at the same time in taxable so it seems intuitive to me to cancel the DRIP but I know not everyone does that.
Personally, I will just keep dividends reinvesting and sell shares when I need the money.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by cheese_breath »

Take it out when you need it. If you don't need it, don't take it out.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by dkturner »

tennisplyr wrote: Mon Jan 18, 2021 7:51 am
dkturner wrote: Mon Jan 18, 2021 6:57 am
birdog wrote: Mon Jan 18, 2021 6:42 am It’s a good question and one I’ve been asking myself recently. My current plan is to do quarterly withdrawals but I’m looking forward to hearing rational for why annual, quarterly or monthly is better/worse.
If you have the ability to wait until the end of the year to take your RMD you have two advantages: (1) The funds you have to withdraw will continue to work for you for 11+ months and (2) you can automatically satisfy your federal and (in some cases) state income tax estimated payments in one lump sum at the end of the year.
Yes but what if the market is down -10%
Waiting until the end of the year is obviously unsuccessful in down market years. Care to make an educated guess (based on the 150 years of market history we have) as to the probability of success by waiting until the end of the year to take an RMD over a retirement lifespan?
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by birdog »

dkturner wrote: Mon Jan 18, 2021 4:15 pm
tennisplyr wrote: Mon Jan 18, 2021 7:51 am
dkturner wrote: Mon Jan 18, 2021 6:57 am
birdog wrote: Mon Jan 18, 2021 6:42 am It’s a good question and one I’ve been asking myself recently. My current plan is to do quarterly withdrawals but I’m looking forward to hearing rational for why annual, quarterly or monthly is better/worse.
If you have the ability to wait until the end of the year to take your RMD you have two advantages: (1) The funds you have to withdraw will continue to work for you for 11+ months and (2) you can automatically satisfy your federal and (in some cases) state income tax estimated payments in one lump sum at the end of the year.
Yes but what if the market is down -10%
Waiting until the end of the year is obviously unsuccessful in down market years. Care to make an educated guess (based on the 150 years of market history we have) as to the probability of success by waiting until the end of the year to take an RMD over a retirement lifespan?
Three out of four years the market finishes up.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by sixtyforty »

birdog wrote: Mon Jan 18, 2021 12:20 pm
sixtyforty wrote: Mon Jan 18, 2021 11:49 am Essentially, if the market goes up, then taking monthly withdrawals allows your funds stay invested longer. In a downward trending market, taking a one time distribution probably prevents losses. Great, except you don't know what the market is going to do. History shows that the market tends to rise more than it falls, so from a probability standpoint, it would seem monthly has an edge. OTOH, if one has a low risk tolerance, then I can see where taking a one time distribution might be better, since you won't have to concern yourself bout market fluctuations until the next withdrawal. I opted for auto withdrawals every month and it's worked well so far.
So does that mean that mutual fund shares are automatically sold and the proceeds auto-transferred to a checking account each month?
In my case, yes.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by hulburt1 »

I have 3 years in MM IRA. On 7,15,21 I have 1500 sent to my checking account. I then put in 0ne of two saving. One is for playing, save for rainy. The other one I have 500 sent to checking every Fri. At the end of the month I buy something I want for the house. If I have nothing I want or planned for I'll send it back to savings or send some to my son who has a newborn. I'm 68 and this way have money coming is every week. :sharebeer
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by eldinerocheapo »

I took monthly distributions last year, but decided to take the entire annual distribution in early January for this year. Why? Because the shock of the March implosion last year convinced me to take the amount I knew we needed and transfer it to a settlement account, so no further gyrations would be in play. This, along with our savings account have allowed us to move on without regard to where the NAV of our funds will be this year, at all. We pull from the settlement account 2x per month, just as if it's a regular paycheck. It's given us peace of mind and a good night's sleep during these turbulent times.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by birdog »

eldinerocheapo wrote: Mon Jan 18, 2021 5:01 pm I took monthly distributions last year, but decided to take the entire annual distribution in early January for this year. Why? Because the shock of the March implosion last year convinced me to take the amount I knew we needed and transfer it to a settlement account, so no further gyrations would be in play. This, along with our savings account have allowed us to move on without regard to where the NAV of our funds will be this year, at all. We pull from the settlement account 2x per month, just as if it's a regular paycheck. It's given us peace of mind and a good night's sleep during these turbulent times.
Something like: Up years draw annually, down years draw quarterly/monthly? That could be a strategy?
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by jello_nailer »

csantiago wrote: Mon Jan 18, 2021 5:40 am I’m playing around with estimates and future withdrawal rates between 3% and 5% when a thought struck me. Would it be “better” (ie would the principal grow more, all other rates being equal) if the entire yearly withdrawal was taken at once, or spread out over 12 months? Seems to me like spreading it out would be wiser since it’s more capital in the markets BUT at this phase losing money in the market is riskier and thus withdrawing the full amount in one go makes sense.

What say you?
Would this not be the other side of the "lump sum all new cash" coin? If you get it in early by lump sum, would you not take it out slowly over time? Unless of course you could "Lump Sum" it our on the last day of the year. I'm thinking 64% of the time you would be better off. Cuts both ways? Time in the market.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by Watty »

Something to keep in mind is that most of your money may be invested in bonds so it may not really matter all that much. For example the Vanguard Target Date Retirement Income fund is about 70% bonds and 30% stocks.

https://investor.vanguard.com/mutual-fu ... olio/vtinx

My general plan is to just transfer money quarterly.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by sport »

birdog wrote: Mon Jan 18, 2021 4:45 pm Three out of four years the market finishes up.
Yes, in *most* years the market finishes up. However, down-moves are often much larger than up-moves. So, while you are hoping for a 10% up year, you are flirting with a 30% down year or worse. Just another thing to consider.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by 260chrisb »

My money is already out of the market for the first three years of retirement and my plan is to take at least three fourths of what I plan to withdraw for the year at the beginning of each year. I may not spend it but It's in a managed account that I plan to spend first and subject to AUM fees that the remainder of my retirement savings are not.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by FIREchief »

I've thought about this quite a bit and my plan is to take it monthly as needed. For Tax Gain Harvesting years, if the market goes up too much I may need to substitute HSA withdrawals late in the year for some after-tax equity sales in order to stay in the zero percent LTCG bracket. 8-)
Last edited by FIREchief on Mon Jan 18, 2021 10:25 pm, edited 1 time in total.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by Broken Man 1999 »

eldinerocheapo wrote: Mon Jan 18, 2021 5:01 pm I took monthly distributions last year, but decided to take the entire annual distribution in early January for this year. Why? Because the shock of the March implosion last year convinced me to take the amount I knew we needed and transfer it to a settlement account, so no further gyrations would be in play. This, along with our savings account have allowed us to move on without regard to where the NAV of our funds will be this year, at all. We pull from the settlement account 2x per month, just as if it's a regular paycheck. It's given us peace of mind and a good night's sleep during these turbulent times.
I think the method you have selected is ideal for you, as who wants the stress when you are retired? If your method allows you to SWAN (Sleep Well At Night), then you should use it.

I did withdraw a year's expected expenses the first year I tapped our retirement portfolio, but I just didn't like seeing cash just sitting there. So, ever since I have used monthly distributions.

We all have our comfort levels that allow us to SWAN. The methods should be tailored to level of comfort needed to enjoy retirement without fear of the market gyrations. No one method serves everyone equally.

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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by Callisto »

I always planned to do monthly, because I think in case of a downturn, it prevents you from having the worst possible timing. If markets go up, its obvious why monthly would have been better.

But even if markets go down, you will end up losing more than if you had withdrawn everything, but you wouldn't be withdrawing a lump sum at the absolute bottom. For example, year starts at -40% from ATH, then steadily falls to -50% from ATH by the end of year. Even though withdrawing monthly would not be as good as withdrawing everything at -40%, you won't ever withdraw at the worst possible -50%.

For me, inverting the problem made it a lot clearer and easier to think about: by doing monthly, I'm protecting myself from having the worst possible timing. This idea is mathematically equal to the argument that time in the market on average yields higher returns, but I think this way of looking at it is more convincing than coming from the "make more money" angle.

On a personal level, I think this would be a lot more comfortable to me as well. End of the day, I think I'd feel pretty bad withdrawing a lump sum if the market was actually something like -40% from ATH.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by GerryL »

This is my 3rd year for RMDs (including last year's RMD holiday.) Each year my IRA has been up as the year begins, so I have gotten into the habit of moving the RMD amount into the IRA settlement fund, which is an MM fund. Essentially, cash. Early in the year I execute my QCDs. Then in the 4th quarter I take the remainder of the RMD and have state and fed taxes withheld.

This works for me because once I make the decision to move the $$$ to cash, I am no longer thinking about it. (Just executed the transfer for 2021 this weekend.) I don't ever go back and try to figure out whether I would have fared better if I had done it differently. Not certain what I will do if a year starts with a down market. Maybe do it in two moves to cash?

There are two implied questions here: One about the benefit of keeping the money invested longer. The other about cash flow for your personal situation.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by rixer »

We take the annual amount in January, put it an online bank and have automatic monthly deposits to our checking account from there. This way we don't worry about it again until next year.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by dkturner »

sport wrote: Mon Jan 18, 2021 5:19 pm
birdog wrote: Mon Jan 18, 2021 4:45 pm Three out of four years the market finishes up.
Yes, in *most* years the market finishes up. However, down-moves are often much larger than up-moves. So, while you are hoping for a 10% up year, you are flirting with a 30% down year or worse. Just another thing to consider.
And what happened in 2008 and 2020 when there were stock market corrections of 30% or more? The IRS waived the requirement to take RMDs.
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Re: Is it more advantageous to take all of yearly distribution in one go, or once every month?

Post by duffer »

csantiago wrote: Mon Jan 18, 2021 5:40 am I’m playing around with estimates and future withdrawal rates between 3% and 5% when a thought struck me. Would it be “better” (ie would the principal grow more, all other rates being equal) if the entire yearly withdrawal was taken at once, or spread out over 12 months? Seems to me like spreading it out would be wiser since it’s more capital in the markets BUT at this phase losing money in the market is riskier and thus withdrawing the full amount in one go makes sense.

What say you?
According to Kiplinger (see link below), taxes withheld from an IRA distribution are considered to be paid evenly throughout the year no matter when they are withheld. They suggest that you might want to take your full RMD at the end of the year and then have taxes withheld from the RMD sufficient to cover your entire tax liability for all income sources (e.g., soc. sec., pensions, taxable withdrawals, business income, etc). By doing this, you keep your tax liability invested until the end of the year and simplify your withholding while avoiding underpayment fines. This, combined with the fact that the market has gone up in 3 out of 4 years, seems to argue for taking the RMD as late as possible.

https://www.kiplinger.com/article/retir ... -rmds.html
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