Income from portfolio

[kathiel]

As someone who is primarily an income investor, the measure of the success of my portfolio is whether in brings in enough in dividends to cover my RMD.  I have.been withdrawing money from my TIRA for about 5 years. 2022 is the first year for which I have an RMD.  My RMD will be a couple thousand more than what I have been withdrawing each year.  So while it is fun to track my TIRA balance, it is not what determines whether I have invested well.

[kathiel]

steelpony10,

I knew you would understand!

[alvinthechipmunk]

RMDs. 5 years away for me. kathiel,steelpony10,
These are informative thoughts. I had figured, like a lot of us, that I'd take the RMD and flip it into a taxable account, rather than to fritter it away. But for that taxable account to produce enough income to OFFSET the RMD... THAT'S using your head! Thanks!

Currently, eyes on UNB and UMPQ. United Bancshares out of Vermont, and Umpqua Bank in Pac. NW (and Las Vegas, I think, too.)
Currently, my income is being re-invested every month, from my bond funds. Yes, bond funds. Maybe I'll NEVER learn? Bonds are sucking like a Hoover these days, of course. But my "Personal Rate of Return" on my TRP bond funds is actually quite satisfactory: 4.25% and 4.05% for the two which are NOT very recent additions. PRSNX and RPSIX.

[Deleted]

Someone please explain the benefit of having taxable distributions cover the RMD? - so you don't have to draw down retirement accounts and get taxed at ordinary income rates on the IRA withdrawals?

[steelpony10]

Feb 1, 2022 4:43:16 GMT alvinthechipmunk said:

RMDs. 5 years away for me. kathiel ,steelpony10 ,
These are informative thoughts. I had figured, like a lot of us, that I'd take the RMD and flip it into a taxable account, rather than to fritter it away. But for that taxable account to produce enough income to OFFSET the RMD... THAT'S using your head! Thanks!

Currently, eyes on UNB and UMPQ. United Bancshares out of Vermont, and Umpqua Bank in Pac. NW (and Las Vegas, I think, too.)
Currently, my income is being re-invested every month, from my bond funds. Yes, bond funds. Maybe I'll NEVER learn? Bonds are sucking like a Hoover these days, of course. But my "Personal Rate of Return" on my TRP bond funds is actually quite satisfactory: 4.25% and 4.05% for the two which are NOT very recent additions. PRSNX and RPSIX.

           It’s a big formula. Lifestyle, investing style, stomach for risk etc. kathiel has had a plan for years and stuck to it. In our case I have a lifetime habit of starting with the answer and working backwards, projecting the most conservative or easiest solution and moving up in risk if necessary. Our plan was completed about 7 years before retirement so I could test it one more time.

            The common factor is we both followed a personal plan and adjusted as the facts or circumstances changed. We both realize you can’t allocate, diversify, change constantly etc. against forever unknowns. You’ll never reach an end, it’s way to much work as you age and you shouldn’t want to drop a mess on a spouse. We both know right away where/when to screen for replacements, to tweak or add if necessary because it’s obvious and easy to perform periodic reviews if one wishes.

[fishingrod]

T cuts divi down premarket 6%

www.cnbc.com/2022/02/01/att-to-spin-off-warnermedia-in-43-billion-discovery-media-merger.html

[liftlock]

Feb 1, 2022 9:41:47 GMT @slooow said:

Someone please explain the benefit of having taxable distributions cover the RMD? - so you don't have to draw down retirement accounts and get taxed at ordinary income rates on the IRA withdrawals?

Sara,

I am not sure I understand your question.  Kathiel's goal may be to generate sufficient dividend income within tax deferred accounts to satisfy the RMD.  One benefit is that it eliminates the need to sell securities during market declines to generate funds for the RMD.  Generating sufficient dividend income to cover RMDs becomes more difficult over time as the RMD %'s rise with age.

If one doesn't need their RMD to live on they can take all or portion of their RMDs using In-Kind shares.  Taking an RMDs using in-kind shares that are down in price can produce a tax benefit.   When shares transferred from the tax deferred account subsequently recover in price within a taxable account, the gains are taxed at favorable rates if the shares are held for at least 1 year in the taxable account.  And the dividends are taxed at favorable rates when they are qualified.  If the shares continue to be held in a tax deferred account, the dividends and the price recovery gains will be taxed at higher ordinary rates if / when they are withdrawn.

[Deleted]

You don't understand it because I was confused and stated it poorly! I'm 59 so a ways off, but always like to hear good tax management tips. Thank you!

[cactusjack]

I have been taking distributions for about 20 years. Started having RMDs about 12 years ago. So far I have been able to maintain sufficient IRA dividends to exceed the distributions (thanks to using a few closed end funds). I also have a decent percentage of investments purely for capital gains (hopefully). Over the last 12 years my portfolio value has increased about 40% while my withdrawals have reached about 84% of the initial amount invested.

I suppose that before too long my RMDs will reach a point where I would have to take on excessive risk to maintain the dividend level necessary to cover distributions, but so far, so good. Just one guy's experience, of course, but so far my goal of not invading principal while keeping dividends equal to or exceeding distributions has worked over 20 years (your mileage may vary).

[sheryldell]

liftlock,

Does that mean the basis of the in-kind distributed shares is the higher original cost basis when they were bought in the TIRA?
Or is the basis of the distributed shares the value of them at the time distributed to satisfy the the RMD?

[cactusjack]

sheryldell,

Been there, done that. When you distribute shares, they are valued at the time of the distribution. (Tried to transfer shares that had come down in value, and sell them for a tax loss...doesn't work that way).

[steelpony10]

cactusjack ,

         We’re doing the same as you with the same results. All cash RMD’s and increased portfolio value because we put the excess to needs income into VTI in both taxable and TIRA accounts. All CEF’s held in a TIRA comprise the balance for us. We should be good until age 90 or so if our luck holds out, money wise that is.

[liftlock]

Feb 1, 2022 21:32:56 GMT sheryldell said:

liftlock ,

Does that mean the basis of the in-kind distributed shares is the higher original cost basis when they were bought in the TIRA?
Or is the basis of the distributed shares the value of them at the time distributed to satisfy the the RMD?

sheryldell,

The tax value of an IRA distribution, including a Roth IRA conversion, is based on market values on the distribution date.  The tax cost basis of in-kind shares transferred to and held a taxable account would be valued on the transfer / distribution date.  Fidelity uses market closing prices to value the shares.  Other brokers might use a modified method. e.g. a hi / low or open /close average for the day.

The cost basis of shares purchased and held in the IRA is not relevant for income tax purposes.  The IRA purchase cost is relevant in determining the profit / loss of an investment.  

[Mustang]

I have all dividends and capital gains reinvested in my Traditional IRA. Like others have said, they're not taxed because they weren't distributed. And because none of the money had been previously taxed there is no cost basis at all. When distributed the entire RMD is taxable. American Funds calculates the RMD and sells shares each month deducting federal and state income taxes and depositing the rest in my checking account. Its completely automatic.

I've only been taking RMDs two years but for both years I finished the year with more shares than I started. So for both years dividends and capital gains were more than the distributions. Since I'm not an income investor I had never really paid attention to that before. As a total return investor what I had been paying attention to is the increase in share price over the two year period. Having a few additional shares isn't bad either.

I also reinvest all distributions (less taxes) into taxable funds. Like all investments each purchase will increase the cost basis of the taxable fund but it doesn't affect the IRA at all.

[Chahta]

Feb 2, 2022 3:37:59 GMT Mustang said:

I have all dividends and capital gains reinvested in my Traditional IRA. Like others have said, they're not taxed because they weren't distributed. And because none of the money had been previously taxed there is no cost basis at all. When distributed the entire RMD is taxable. American Funds calculates the RMD and sells shares each month deducting federal and state income taxes and depositing the rest in my checking account. Its completely automatic.

I've only been taking RMDs two years but for both years I finished the year with more shares than I started. So for both years dividends and capital gains were more than the distributions. Since I'm not an income investor I had never really paid attention to that before. As a total return investor what I had been paying attention to is the increase in share price over the two year period. Having a few additional shares isn't bad either.

I also reinvest all distributions (less taxes) into taxable funds. Like all investments each purchase will increase the cost basis of the taxable fund but it doesn't affect the IRA at all.

No cost basis for taxes but for monitoring results, absolutely.

[dougj1]

At year end Schwab will tell me what the RMD for each account is. Then I estimate what taxes will be owed on the RMD distribution. Then I estimate what income may be generated from the rest of the portfolio.

Then estimate what taxes are due on the income from rest of portfolio. Sometimes those estimates can get a little squishy. During the year I make quarterly tax payments. Taken from available income either from the IRA distributions or from other income sources.

I do not have any specific times when the RMD is taken as it only needs to be taken by year end. Some RMD's are taken by in kind transfers some are done with cash from TIRA.

At times this process can get a little complicated, but have not figured out a better way to do.

[Chahta]

I too am with Schwab but not into RMDs yet. In the Summary view of portfolios there is an Investment Income tab that will tell you the amount of income past, present, future.

[dougj1]

Chahta - Yes, thank you, I have looked at that income tab from Schwab, but can't determine what is "other" taxable or IRA distributions.  Probably doesn't matter 

Steellpony10 = Thanks will look at taxslayer currently use a Virginia Tax estimator covering both state and federal. Wouldn't eliminating RMD's be great. I am 79 so will probably never see that.

[Mustang]

Feb 2, 2022 13:28:56 GMT Chahta said:

Feb 2, 2022 3:37:59 GMT Mustang said:

I have all dividends and capital gains reinvested in my Traditional IRA. Like others have said, they're not taxed because they weren't distributed. And because none of the money had been previously taxed there is no cost basis at all. When distributed the entire RMD is taxable. American Funds calculates the RMD and sells shares each month deducting federal and state income taxes and depositing the rest in my checking account. Its completely automatic.

I've only been taking RMDs two years but for both years I finished the year with more shares than I started. So for both years dividends and capital gains were more than the distributions. Since I'm not an income investor I had never really paid attention to that before. As a total return investor what I had been paying attention to is the increase in share price over the two year period. Having a few additional shares isn't bad either.

I also reinvest all distributions (less taxes) into taxable funds. Like all investments each purchase will increase the cost basis of the taxable fund but it doesn't affect the IRA at all.

No cost basis for taxes but for monitoring results, absolutely.

Yes. I look at that chart.  It basically shows the current value of my IRA is four times its cost and that the cost goes down with each distribution while the IRAs total value continues upward even after distributions.  For accumulators there might be some value. It will give them an idea if they are making any money or as Kathiel said, that the investment is doing well.  But I don't see any value for those taking RMDs.  I'm curious as to what happens when the cost hits zero. (which will be a few years from now.)  I'm pretty sure the answer is nothing.  The entire RMD will still be taxable.  I am more concerned with the IRAs total value and I use Morningstar to see how the investment is doing.

[kathiel]

steelpony10,

I don't think you went off topic. I'm glad you were here to answer people's questions, as I was busy all afternoon yesterday.

I remember the first time I posted on M* about my plan of having my portfolio generate enough income so I wouldn't't have to sell anything. Lots of people responded that it wasn't possible.

[retiredat48]

Pardon me for throwing in a simplified way to assess your IRA and RMDs.

Each Dec 31 you get a portfolio value statement showing your IRAs (maybe multiple IRAs) total year end value.  You know the previous 31 Dec IRA value, and the annual RMD you took.  So, compare the year's starting value, add the RMD, and compare to year ending value.  You will have either an increase or decrease.  What more is needed?

Example, this 31 Dec your IRA value was $1,050,000.  Last Dec was $1,000,000.  You took RMDs of $35,000.

So your IRA portfolio gained...simple.

Disclosure:  I have been taking RMDs for 28 years now, and do not find it that complicated to see my Portfolio Value trends.

R48

[kathiel]

Yes, I always appreciated Bruce. His book Is excellent, IMO. At this point, I've been been investing that way long enough to feel confident in that approach.