IRS stipulation could have consequences for seniors in a declining stock market

Growing fears of a retirement crisis in the U.S. are no secret as Americans face a future that potentially includes fewer Social Security benefits. But the uncertainty of Social Security is not the only thing that seniors should consider as they seek to safeguard their financial well-being.

Over the weekend, The New York Times detailed the problem of required minimum distributions, or RMDs, from retirement accounts at a time of uncertainty and volatility in the financial markets. The outlet interviewed a self-proclaimed “lifelong saver” who saw her investment balances drop by $60,000 this spring in the wake of global tariff increases under the Trump administration.

The Times explained that the IRS requires some Americans with tax-deferred retirement plans, including 401(k)s and individual retirement accounts (IRAs), to draw down their savings or face penalties. These distributions are taxed as income and “can be painful when retirees have to sell assets in a falling market,” the story noted.

Kentucky resident Shelby French, a 75-year-old retiree, said she uses her required minimum distributions to pay “big things” like long-term care premiums, property taxes and homeowners insurance.

Typically, she spreads out the withdrawals in smaller amounts over the course of the year. But as 2025 began and French saw more downside risks in the stock market, she went against the guidance of her financial adviser by taking a single lump sum in January and placing the proceeds into a high-yield savings account.

“I put all my R.M.D. in savings because who even knows if Social Security is going to exist, with DOGE and all,” French said, referring to government cost-cutting efforts under the U.S. DOGE Service. “All this stuff that’s going on, it sort of undermines your confidence.”

The report noted that in 2022, Congress changed some key rules for retirement account withdrawals. Under the SECURE 2.0 Act, people born between 1951 and 1960 must begin taking mandatory withdrawals at age 73, up from 72 under the prior law. People born in 1960 or later can wait until they turn 75 before taking RMDs.

But because these mandated distributions are based on account balances at the end of the prior calendar year, a market downturn in the ensuing months essentially means “they have to withdraw a proportionately larger amount to meet their required minimum,” the Times explained.

“It feels like this has happened a lot — you get a market turn in January and all of a sudden, you’re taking an R.M.D. off a December balance that doesn’t exist anymore,” Tim Steffen, director of advanced planning at private wealth manager Baird, told the outlet. “Now your percentage you have to take out becomes much higher.”

Some financial advisers recommend that clients estimate their required distribution and set aside an equivalent amount that isn’t invested in stocks to avoid having to sell in a down market.

“If you’re concerned about inflation being more aggressive due to tariff policy, then the lesson would be to raise the cash now,” Jonathan Lee, an investment portfolio manager at U.S. Bank Private Wealth Management, told the Times. “You can essentially maintain a cash bucket if you know what your R.M.D. is for 2025.”

Alvino Lo, chief wealth strategist for Wilmington Trust, noted that regular monthly withdrawals can be a smart strategy as distributions taken when the market is up balance out those taken at a loss. And for retirees who wish to leave their retirement savings to heirs, a declining market could be an opportune time to convert assets to a Roth IRA and reduce the taxes owed, she said.

“It’s a little bit of making lemonade out of lemons,” Lo said.