New York Elder Law Attorney
This is the time of year to start planning for RMDs unless you are taking them automatically. If you haven’t taken an RMD in 2025 and don’t need funds to cover living expenses, you may want to wait until December. That’s because if your RMD covers your entire tax bill, you can avoid quarterly estimated tax payments by taking the RMD in December and having your financial institution withhold a sufficient amount.
This is something most people don’t know. You can take your RMD and tell the brokerage house or advisor to withhold any amount. If the RMD is enough to cover quarterly estimated tax payments, you don’t need to make them, and the withholding on the RMD will cover the payments without penalty.
Here’s an example: Let’s say you’re required to make four quarterly estimated tax payments of $2,500 each. Your Required Minimum Distribution (RMD) for the year is $15,000. You can instruct the financial advisor to withhold $10,000 in addition to the tax due on the RMD. As a result, you will no longer need to make quarterly estimated tax payments. This allows your assets to remain in the IRA, maximizing your compound interest, which continues to grow tax-free.
Here’s why this works:
Tax-deferred retirement accounts, like traditional IRAs and 401(k)s let wage earners save pre-tax dollars. In exchange, workers pay income tax on the withdrawals and any future growth.
But you can’t keep money in tax-deferred accounts forever. That’s where the RMDs come in. They ensure Americans don’t keep saving tax free. After you reach a certain age, you are required to take a portion of the balance every year. If you fail to take your RMD in any year, you pay an excise tax equivalent to 25% of the monies you failed to take out. That’s a hefty penalty.
RMDs have to be taken out before December 31 every year. The first RMD is the only exception, you can take that out up to April 1 of the following year.
There are a few strategies for taking RMDs, with benefits and drawbacks.
Those who own traditional retirement accounts have three options:
- Take the money early in the year.
- Make withdrawals as periodic installments.
- Take lump sum at the end of the year before December 31.
It all depends on your personal circumstances and preferences. But there are pros and cons to each choice.
Take a lump sum early in the year and you don’t have to think about it again. But you miss out on any growth in a tax- deferred investment, and you’ll need to make an estimated tax payment for the quarter.
Take it out throughout the year and you’ll enjoy regular cash flow. This makes sense if you make quarterly tax payments, since you can time the RMD to cover the expense. There is a downside: you’ll have to make multiple estimated tax payments, one for each quarter when money was withdrawn. Miss a deadline and you’ll get hit with an interest charge.
Taking a lump sum late in the year allows you to skip having to make estimated quarterly tax payments and maximize the tax-deferred growth. If you don’t need the cash to pay expenses, this can be a good solution. But there’s a downside here too: if you forget to make the withdrawal in time, you’ll pay a penalty. And if the market dives during December, you may have to sell investments on the low side to gather cash for a withdrawal.
Which choice is best depends upon your personal situation, but most people don’t know about using RMDs to cover quarterly estimated tax payments. If you want to explore this, call me and I’ll be happy to discuss it in detail.
# # #
Reference: yahoo! finance (September 21, 2025) “The 2025 Required Minimum Distribution (RMD) Deadline Draws Near. Should Retirees Make Withdrawals Now or Wait Until December”