Taking RMDs From Illiquid Assets: What to Know

Required Minimum Distributions (RMDs) can be straightforward when your retirement account holds cash or assets that can be easily sold. But what happens when your IRA holds a lot of assets that can’t be easily converted to cash?

Holding illiquid assets doesn’t remove your RMD requirements, but it does make planning for RMDs even more important.

You can take RMDs when your IRA holds illiquid assets in several different ways, including using multiple accounts, taking in-kind distributions, selling only part of an investment, or using cash reserves. Understanding your options can help you be more prepared when RMDs start.

What Are Illiquid Assets?

When an asset is considered “illiquid,” that means it can’t be easily sold or otherwise converted into cash. Examples include real estate, precious metals, and promissory notes. There are also different levels of illiquidity.

For example, while a real estate property may take a few months to sell, it could still be easier to liquidate than a promissory note that has three years left until maturity.

How Are RMDs Calculated When Your IRA Holds Illiquid Assets?

RMDs are based on the IRA’s value at the end of the previous year. From there, the actual RMD amount is determined based on the applicable IRS life-expectancy factor.

Let’s say you were born in 1950, and your IRA’s value at the end of last year was $1,000,000. You would turn 76 in 2026, giving you a distribution period of 23.7 under the IRS Uniform Lifetime Table. Your RMD for 2026 would be approximately $42,194.

Because RMDs are based on your IRA’s year-end value, illiquid assets may need an appropriate valuation to determine the account’s total value and properly calculate your RMD.

Ways to Take an RMD When Your IRA Holds Illiquid Assets

While RMDs are calculated as a dollar amount, that doesn’t necessarily mean you need to sell an illiquid asset to generate that exact amount in cash. Depending on your IRA and the assets you hold, you may be able to use existing liquidity or distribute an asset itself.

Use Cash Already Inside the IRA

If your IRA already holds enough cash, you may be able to meet your RMD without selling an illiquid investment. That cash could come from rental income, interest or dividend income, or other cash held within the account. For example, an IRA that owns rental real estate may accumulate rental income that can later be used to fund distributions.

If you are still eligible to contribute to the IRA, contributions may also increase the cash available in the account, subject to applicable contribution limits.

Aggregate RMDs Across Eligible IRAs

RMDs are per account. However, that doesn’t mean that RMDs have to come out of the same account.

If you own multiple eligible IRAs, you can generally add the RMDs together and take the total amount from one or more of those accounts. This can be helpful if one IRA holds primarily illiquid investments while another has more liquidity.

However, the rules are different for many employer-sponsored retirement plans. For example, RMDs from 401(k) and 457(b) plans generally must be calculated and taken separately from each plan, while 403(b) accounts have separate aggregation rules. Consider consulting a tax professional if you plan to use this method.

Take Your RMD as an In-kind Distribution

Instead of selling an asset and distributing the cash, you may be able to take an in-kind distribution. This means transferring the asset itself, or a portion of your ownership in it, out of the IRA and into your name personally. For example, instead of selling IRA-owned real estate, all or a portion of the IRA’s ownership in the property could be distributed from the IRA to you.

To do this, the asset must have an appropriate fair market value at the time of the distribution. That value is then counted toward the RMD and is generally taxable when distributed from a Traditional IRA. Once distributed, the asset is personally owned rather than held in the tax-advantaged IRA.

Get a Non-Recourse Cash-Out Refinance Loan

While many investors think that non-recourse loans can only be used for real estate purchases, there is actually a way to use them to meet your RMDs.

If your IRA-owned property has enough equity and qualifies for a non-recourse cash-out refinance loan, you may be able to leverage a portion of its value without actually selling it. The loan funds are sent directly to your IRA and can be used to satisfy your RMD. This method may be especially useful if your property has substantial equity, but the rental income alone isn’t enough to meet your RMDs.

When considering this option, make sure you understand all of the loan terms, including your repayment plan, if there are any early payment penalties, and whether the loan could trigger unrelated business income tax (UBIT). Consult your tax attorney or financial professional regarding your specific circumstances.

Equity Trust clients have access to IRA Power Loans, a non-recourse loan provider with competitive loan-to-value ratio, proprietary application process, and loan specialists experienced in working with IRAs. You can learn more about how this works by meeting with a loan specialist here.

Sell or liquidate part of an investment

Selling an asset can also create the liquidity needed for RMDs. Some investments may also allow you to sell only a portion of your interest. For example, an IRA that owns shares of a private company or an interest in an LLC may be able to sell some of that ownership rather than liquidating the entire investment. Whether this is possible depends on a few different things, including the asset itself, how ownership is structured, and any documents dictating management rules.

If selling only a portion isn’t possible or doesn’t generate enough liquidity, selling the entire asset may be another option. If you generate enough cash from the sale, you may also be able to maintain a cash reserve to meet RMDs for several years, which could make it the simplest approach for some.

How to Prepare Your IRA for Future RMDs

As you reach the age when RMDs begin, some preparation can help you make more informed choices rather than trying to meet the requirements closer to the deadline.

Maintain some liquid assets: Keep cash, income-producing investments, or other assets that can more readily fund distributions in your IRA. This can help reduce the need to sell an illiquid investment solely to meet an RMD.

Calculate and plan distributions early: Estimate upcoming RMDs and consider expected cash flow from investments to allow enough time for any needed valuations, sales, transfers, or in-kind distributions.

Review where your retirement assets are held: If you have multiple IRAs, understanding which accounts hold liquid and illiquid assets can help you determine where future RMDs may come from. An IRA with greater liquidity may be able to satisfy RMDs calculated for other eligible IRAs.

Managing RMDs When Your IRA Holds Illiquid Assets

Holding illiquid assets in an IRA can make RMDs more complicated, but it doesn’t mean you have to sell an investment when distributions begin.

Cash already inside your IRA, RMD aggregation across eligible accounts, in-kind distributions, and creating liquidity through a sale can all provide potential ways to meet your requirements. Planning ahead can give you more time to determine which option makes sense for your retirement assets.

Ready to explore illiquid assets in a retirement account? Learn how a self-directed IRA can give you access to investments like real estate, private credit, precious metals, and more.

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