At a glance
| Consideration | Self-directed difference |
|---|---|
| Valuation | Assets that aren't publicly traded need an independent valuation rather than a price pulled from an exchange |
| Liquidity | Alternative assets don't sell in a day, so you need cash on hand or a plan to generate it |
| In-kind distributions | Distributing an asset itself rather than cash is possible, but spreading it out fractionally over several years usually creates more cost than it saves |
| Asset selection over time | Assets that produce steady cash flow become more useful as you approach RMD age than assets that only pay off at sale |
When is your first RMD due?
A Required Minimum Distribution, the amount the IRS requires you to withdraw each year from a tax-deferred retirement account, begins the year you turn 73 under IRC Section 401(a)(9), with the trigger age rising to 75 beginning in 2033. Each year's required amount is calculated by dividing your account balance as of December 31 of the prior year by an IRS life expectancy factor. All RMDs after your first one are due by December 31 each year.
Your first RMD carries one additional option: you can delay it to April 1 of the year after you turn 73, rather than taking it by December 31 of the year you turn 73 itself. Taking that option means you will owe two RMDs in the same calendar year, the delayed first one and the regular one for that year, which can push a meaningful amount of income into a single tax year. Whether spreading the two distributions across separate years or taking both together makes more sense depends on your broader tax picture, and it's worth a conversation with a tax professional before deciding.
What happens if you miss an RMD?
Missing an RMD deadline triggers a 25 percent excise tax under IRC Section 4974, applied to the shortfall rather than your full account balance. If your RMD for the year was $10,000 and you took nothing, the excise tax is 25 percent of that amount. If you took $6,000 of a $10,000 requirement, the tax applies only to the remaining $4,000. The income tax on the missed amount is still owed as well, regardless of the excise tax; when you do eventually take the distribution, it's included in your income for that year.
SECURE 2.0 added a correction window that reduces that exposure significantly. It opens January 1 of the year following the missed RMD and generally runs about two years. Correcting the shortfall within that window drops the excise tax from 25 percent to 10 percent.
| Scenario | Excise tax outcome |
|---|---|
| Missed RMD, corrected within the correction window | 10 percent of the shortfall |
| Missed RMD, not corrected within the window | 25 percent of the shortfall |
| Missed RMD, IRS grants a reasonable-error waiver | None, waiver request required |
The IRS can waive the excise tax entirely for a shortfall caused by reasonable error, provided you take steps to correct it. Filing Form 5329 with a written explanation starts that request; approval isn't guaranteed, but the option exists for situations that genuinely warrant it. The excise tax itself, when one applies, is reported on Form 5329 with your individual tax return for the year the shortfall occurred.
Why does valuation matter more here?
A conventional IRA invested in public securities gets valued automatically. Your custodian looks up the price and reports it. A self-directed IRA doesn't work that way. Your plan holds its assets inside an LLC or Trust, and it's the entity itself that gets valued, its value equal to the sum of everything it holds. You're the one who determines and reports that year-end figure; the custodian and the IRS need the entity's total value, not a breakdown of each underlying asset.
With a Solo 401(k), you track the plan's value directly as trustee. If total plan assets stay at or below $250,000 at the end of the plan year, there's no formal reporting requirement for that valuation. Once year-end assets exceed $250,000, the value gets reported on Form 5500-EZ. Either way, keep documentation supporting your valuation on file; it's what demonstrates you're meeting your recordkeeping duties as plan administrator if the plan is ever audited.
None of this is just paperwork. A valuation is a reportable event, and for assets like real estate or private placements, getting a defensible number can mean a professional appraisal, a valuation letter from a sponsor, or a certification from a licensed third party. Those take time to obtain, and they don't happen overnight in December. Planning your valuation timeline well before year end, rather than scrambling for it once your RMD calculation is due, is one of the more practical habits a self-directed account holder develops.
Why does cash liquidity become a planning issue?
An RMD has to be satisfied in cash or in-kind by the deadline, and most account holders take it in cash. That's straightforward when your plan holds a brokerage account you can sell from in seconds. It's a different conversation when your IRA or Solo 401(k) holds a rental property, a private note, or an interest in a syndication.
The practical answer is to plan ahead rather than scramble each December. If your alternative investments are generating income, that income can often cover your RMD without forcing a sale of the underlying asset. As you get closer to RMD age, it's worth taking stock of how much of your self-directed portfolio produces regular cash flow versus how much only pays off when you eventually sell it, since the mix determines how much advance planning your distributions will require.
Can other accounts help satisfy the RMD from this one?
For IRAs, yes, and this is one of the more useful pieces of flexibility built into IRA distribution rules. RMD amounts are calculated separately for each IRA you hold, but they don't have to be taken from that same account. As long as the total amount withdrawn across all your IRAs meets the combined total required, you can choose which account, or combination of accounts, the distribution actually comes from.
For a self-directed IRA holding illiquid assets, this matters. If you also hold a conventional IRA with liquid holdings, you can draw more of your RMD from that account in a year when generating liquidity from the self-directed IRA would mean an unfavorable sale.
This flexibility applies across your IRAs as a group, but it does not extend to a Solo 401(k). Each Solo 401(k) plan's RMD must be calculated and satisfied from that plan directly, and it cannot be offset by distributions from an IRA or another employer plan. If you hold both a self-directed IRA and a Solo 401(k), plan for each account's RMD separately.
Can I take the RMD as the asset itself?
Yes, an in-kind distribution is possible in either an IRA or a Solo 401(k), and it works the same basic way: the asset is valued, then transferred out of the plan into your name, and that value counts as your RMD for the year.
Where investors run into trouble is trying to soften a large tax hit by spreading a single asset's distribution across several years instead of taking it all at once. On paper, distributing a quarter of a property's value each year for four years sounds like a way to smooth out the tax impact. In practice, it means a fresh appraisal every year, joint ownership between you and the plan in the interim, and every expense and income item on that property split proportionally between you and the plan for as long as the arrangement lasts. Any deviation from that split risks being treated as self-dealing. It's a real strategy that shows up in online discussions of self-directed investing, which is exactly why it's worth naming here: it's technically possible, but the added cost, paperwork, and risk usually outweigh whatever tax smoothing it was meant to achieve.
Does this change how I should invest as I approach RMD age?
It's worth thinking about, yes, for either type of plan. Not every asset in a self-directed IRA or Solo 401(k) is equally well suited to the years once RMDs begin. An asset that produces steady income, a rental property with positive cash flow, a performing note, an income-focused fund, gives you a built-in source to draw RMDs from without having to sell anything. An asset that only produces a return when it's eventually sold, raw land or a long-hold equity position, gives you nothing to distribute from until that exit happens, which can force a sale on a timeline the market didn't choose.
This doesn't mean cash-flowing assets are automatically better investments. It means the closer you get to RMD age, the more that income character starts to matter for how manageable your distributions will be, alongside whatever return and risk considerations already drive your investment decisions.
Frequently Asked Questions
Will I need to sell my rental property when I turn 73?
No, not necessarily. Walter's IRA LLC owns a single rental property that generates steady monthly cash flow, and that income alone has covered his RMDs since he turned 73. The percentage of your account required each year increases as you age, but an income-producing asset like a rental property or a performing note can often keep pace with that growth well into your 80s before selling the asset becomes the more practical route.
Can I use a Qualified Charitable Distribution to satisfy my RMD?
Yes. A Qualified Charitable Distribution sent directly from your IRA to a qualifying charity can count toward your RMD for the year, up to an annually set IRS limit, and the amount sent isn't included in your taxable income. This option applies to IRAs; it isn't available from a Solo 401(k) directly.
Does converting funds to a Roth account reduce my RMD for that year?
No. Your RMD must be satisfied first, in cash or in-kind, before any additional funds from that account can be converted. An RMD amount itself cannot be converted to a Roth account.
Can I take my RMD earlier in the year instead of waiting until December?
Yes. Nothing requires you to wait until the deadline. Taking it earlier in the year can also give you more flexibility if a planned asset sale or income distribution doesn't land on the timeline you expected.
Can I take more than the required minimum amount?
Yes. The RMD is a floor, not a ceiling. You can withdraw more than the required amount in any year; the calculation only sets the minimum you must take, not a cap on what you're allowed to.
I hold a self-directed IRA, a Solo 401(k), and a spousal beneficiary account. How do I make sure every RMD is calculated and satisfied correctly?
That combination crosses enough separate rule sets, IRA aggregation, Solo 401(k) isolation, and beneficiary-specific timing, that it's worth working through with a CPA or tax attorney familiar with self-directed plans rather than piecing it together account by account on your own.
Next Steps
Still deciding which structure fits? Plan Finder accounts for how close you are to RMD age alongside your funding sources and investment goals.