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Your RMD Deadline Is Near. Here’s How to Choose the ETF to Sell

Digilifetrends Published 4 min read

The IRS tells retirees how much must come out of a retirement account, but it leaves one important choice to the account owner: which investment to sell. For many people, that decision can also double as a simple portfolio rebalancing opportunity.

An elderly woman with white hair and glasses, dressed in a white collared blouse and dark skirt, stands in a modern office. She is holding an open gray folder and looking down at its contents with a focused expression. In the blurred background, there's a large window and a wooden desk with a mug and notebooks.
An elegant senior woman reviews documents, symbolizing the careful consideration often needed for major financial decisions in retirement. Her focus reflects the importance of detailed planning when contemplating significant lifestyle changes and asset management.

Many traditional IRA owners still have a familiar job ahead: taking a required minimum distribution, or RMD. That is the amount the IRS requires you to withdraw each year after you reach a certain age. Plenty of retirees treat it like an ordinary task: sell an asset, take the cash, and move on.

But mistakes can be expensive. If you withdraw too little, IRS Publication 17 says you could face an excise tax of 25% on the amount you failed to take out. The formula determines the required amount, but you choose which investments fund it. The examples below use three common ETFs found in retirement accounts.

What Determines the RMD Timing

According to IRS Publication 17, traditional IRA owners generally must begin RMDs by April 1 of the year after they reach age 73. That date is known as the required beginning date. Starting with the year you turn 73, you must receive at least the minimum required amount.

If you delay the first withdrawal, you can take it by April 1 of the following year. But the next year’s RMD is still due, which can create two taxable withdrawals in the same year.

Your exact deadline depends on your situation, so it is important to check the paperwork from your IRA custodian. IRS Publication 590-B says the firm that holds your IRA must either calculate the RMD for you or provide a report of the amount by January 31. That report should also show the date by which the distribution must be taken. Treasury rules on IRA distributions require a minimum amount for each calendar year based on the account balance at the end of the previous year.

On the tax side, Publication 17 says traditional IRA distributions are generally taxable, except for the part tied to nondeductible contributions. Roth IRAs follow different rules, and Treasury regulations say no minimum distribution is required from a Roth IRA while the owner is alive.

The Rule That Lets You Choose the Source

If you have more than one traditional IRA, the required amount is calculated separately for each account. Publication 590-B then allows you to total those amounts and take the full distribution from one IRA or across multiple IRAs.

The Treasury regulation also says that all amounts distributed from an IRA count toward the requirement, whether or not they are included in taxable income. One example is a qualified charitable distribution, or QCD, which sends money directly from an IRA to an eligible charity. Returned contributions and corrective distributions are among the exceptions listed.

In practical terms, the IRS cares about how much leaves your IRAs. You get to decide which holdings the money comes from.

Where to Take It From: Stocks, Bonds, or Dividend Funds

Vanguard S&P 500 ETF (NYSEARCA:VOO) tracks the S&P 500 and often serves as a core U.S. stock holding in a retirement portfolio. Selling some of it after a strong run can bring your asset mix closer to target, though it also reduces future stock exposure.

Vanguard Total Bond Market ETF (NASDAQ:BND) owns a broad mix of U.S. investment-grade bonds. Taking the RMD from this fund leaves more of your money in stocks, which may make the portfolio riskier than intended.

iShares Core High Dividend ETF (NYSEARCA:HDV) focuses on high-dividend U.S. stocks and is often used by retirees seeking income. Selling it reduces a steady income source inside the IRA. On the other hand, dividends in the account can build up as cash and may be enough to cover part or all of the RMD without selling shares.

The common thread is rebalancing: bringing your portfolio back to the stock-and-bond mix you want. Decide on your target allocation, then use the RMD from whichever holding has drifted beyond its share.

A Year-End RMD Checklist

  1. Review your custodian’s RMD statement and confirm the deadline listed there.
  2. Add together the RMD amounts from all traditional IRAs.
  3. Identify which holding is overweight relative to your target allocation.
  4. If charitable giving is part of your plan, consider a qualified charitable distribution.
  5. Allow enough time for trades or transfers, since settlement can take several days.

The IRS determines how much you must withdraw. You decide where it comes from, and that choice can give you a chance to rebalance your portfolio without extra cost.

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