Taking RMDs when the account is illiquid

Investor Services Insights · Updated for 2026

Required minimum distributions are calculated from the account’s prior year-end value and must come out on schedule — the tax code does not grant extensions because the assets are hard to sell. For accounts holding real estate, private funds, or notes, RMD season is a liquidity problem with a legal deadline, and the penalty for missing it is levied on the amount not taken. The mechanics live in our RMD guide; this piece is about the planning.

The math starts with the valuation

Because the RMD is a percentage of prior year-end value, the fair market valuation of every private asset does double duty: it sets the reported account value and next year’s required distribution. A stale, inflated valuation quietly inflates the RMD it generates.

Three ways to satisfy an RMD from an illiquid account

Cash reserves: the simplest — hold enough cash or income-producing assets (rent, note payments, distributions) in the account to cover a few years of RMDs. Aggregation: IRA rules let you total the RMDs across your IRAs and take the sum from whichever has the cash — a liquid IRA elsewhere can carry an illiquid one’s obligation. In-kind distribution: distribute a piece of the asset itself — a fractional deed interest, a portion of a note — valued at fair market value on the date of distribution. It satisfies the requirement and is taxable like cash; it also requires retitling work and a defensible current valuation, so it is a planned maneuver, not a December improvisation.

The planning calendar

Age 70: map which accounts will owe RMDs and what they hold. Each fall: confirm valuations are current and cash is positioned — sell, distribute income, or line up aggregation before year-end pressure. Before buying any new illiquid asset after your 60s: ask what it does to RMD capacity for the next decade. Accounts get into RMD trouble in December; they get out of it in January planning.

← All insights   The RMD guide →