RMD process

[Chahta]

I am curious how posters are handling RMDs. Are you reinvesting then selling shares at the end of the year or are you accumulating cash from distributions to sell? Obviously there are pros and cons for each.

[Deleted]

My RMDs, after tax with holding, goes mostly to whatever I am currently using as ballast for my 50% equities. Currently it's (1 year or less) CD's, T-Bills and MM. I always hold to maturity at which time a new decision is made. I rebalance to maintain the 50/50 AA.

[yogibearbull]

Processes vary.

Fido 403b - Phone call needed. Fido says that is required by my plan but I wonder.
TIAA 403b - Online process.
Vanguard T-IRA - Online process.

What you do with it is another issue.

Some use it for regular or ad-hoc expenses, others use it for investing.

RMDs cannot be rolled over into T-IRAs. If one has income in retirement (72+), then one can contribute to IRAs and money is fungible.

RMDs are assumed to be the first withdrawals from T-IRAs. Big complications may arise if another withdrawal order is followed.

I used to take them ASAP in January for investing, but in 2020, the RMDs were waived and it was a mess to reverse those. So, I now don't hurry and take it later in the year and my use for them is mixed too.

[fritzo489]

Recently took 1/2 half T-IRA RMD & added to a T-Bill that I purchased.
I doubt if RMD's will be waved this year. I didn't redo my 2020 RMD & it cost me in the run, about a grand !!
That happened when GOV was giving $$ out based on income.
Happy Father's Day, fritzo489

[yakers]

Most of RMDs go to QCDs, a bit left over is spent. Withdrawals are opportunities to rebalance towards AA

[richardsok]

So far RMDs have been a non-issue for me.  I have always earned much more than I've needed for RMDs from my dividend stream.  I do re-invest but haven't been 100% invested at any one time.  I want to make my gains & losses driven by basic analysis & technical signals and not by tax obligations -- and that applies to my taxable accounts as well.   I simply believe if I can just make good moves the tax probs will handle themselves.

[yogibearbull]

yakers , if one doesn't need RMDs for expenses or investments, the QCDs are great.

BTW, I have a DAF for charitable stuff. Of course, the QCDs cannot go into DAFs. The QCDs can begin at 70.5 and the current limit is $100K.

[retiredat48]

Chahta ,@axe ,yogibearbull ,fritzo489 ,yakers ,richardsok ,...Weekend bonus...a detailed post of what I do for RMDs, as previously outlined to Mustang:

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Mustang...and others...here's my withdrawal strategy...been withdrawing for over 29 years now.

As background, I submit that for most investors, their main goal is you do not want to be withdrawing monies for retirement purposes at the bottom of bear markets. Fair enough, most feel this way.

Also, many will be taking Req'd Min Distributions from their mostly untaxed portfolio (IRAs). I have done such IRA withdrawals for 27 years now (taking out money to live on), and found the following scheme to be my best method to reduce the risk of taking out during bear market bottoms, without holding excessive cash. Some call it "IMMUNIZING YOUR PORTFOLIO." Here it is...ponder...you can get up to two years of wait time without having to take an RMD or withdraw a penny:



First, I always try to own about a half years living expense worth of shorter term bond funds such that if the stock market crashes, can be tapped for spending/withdrawals (or added into the stock market!). It is part of my asset allocation. I do not own much "cash." These shorter term bond funds do not fluctuate much in total return. I opt for the higher interest, versus absolute safety of cash, MM Funds or CDs. Over time, this added interest adds up greatly.



Then each December, I assess my asset allocation and previous stock and bond fund yearly performances to date. Then, I decide, and select one or more stock funds to take some off the table, to give a second years short term cash holding, if strategically beneficial. This means, if the stock market zoomed upward in a given year, I likely will take some off the stocks table...a form of rebalancing.



For example, In Dec 2013, I sold some Energy Funds moving it to VFSTX for the second year withdrawals. Year 2014 I did not sell any that past December, but planned on selling Vanguard's Health Care Fund, for my RMDs throughout the year. This selling/taking RMDs was completed summer 2015. At the end of that year 2015, I further sold more from my Healthcare Fund to meet the upcoming 2016 year RMDs. This turned out to be a good sale also, as Healthcare declined a lot in 2016. So I have a two year cushion to market selling, as I can wait until end of 2017 to take 2017 RMDs.



December 2019, I completely exited Energy Sector funds...as laggards, to build full cash for 2020 RMDs. With the stock "meltup" in January ...I sold more stock funds. With Covid, I sold more in early February (All documented/posted real time, if anyone is interested). So I now had the full vaccination of two years worth of RMD distributions...IN CASH/SHORT TERM BOND FUNDS.



Note that if you do this selling in December, and the market goes into an immediate bear market, you are set for 24 months before any cash replenishment need is necessary to take required RMDs. That is, current year RMDs come from the first bucket, and the next year RMDs need not be taken until December of that year, giving 24 months worth of wait. Bear markets usually recover a lot in this time frame.



If money is absolutely needed monthly, live off a HELOC or equivalent for awhile...or from bond funds. Remember, in the vast majority of market history, bond funds go up when stock funds decline. Bond funds, part of ones allocation, are the usual source of spending monies in stock bear markets.



Lastly, many say you cannot time the market. OK...but investors taking RMDs must realize you have to time the market, generally EACH YEAR, if you live on distributions like I do. You must sell some stock funds at times to replenish your bond funds, if you are taking everything from bonds. There's no escaping this fact. Otherwise, your stock/bond allocation gets distorted. Better to do such timing strategically...with a plan.



With this December strategy, you immunize your portfolio withdrawals for up to 24 months...if you like. Few storms last longer than that.

For this current RMD year, because I moved large amounts from standard issue, vanilla bond funds in 2021 (posted real-time) and parked in shorter term funds, my RMDs are covered for quite some time.  I withdraw whenever I need money!  And I make December final withdrawals, withholding some or up to 100% for estimated fed taxes due that year, in lieu of QTRLY tax withholding.  


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R48

[Chahta]

Thanks all. But what I was thinking about is what to do before withdrawal. Do I collect distributions and put into a MM fund inside the TIRA? Or reinvest all distributions and then sell shares to fund the RMD? If reinvesting the distributions you could see declines as in 2022. Or another possibility is reinvesting and taking "in kind" distributions.

But if I was to use the RMDs to spend would it be better to take them in cash from the MM fund in the TIRA? Yes I have a cash buffer in my taxable account as R48 mentions. I think steelpony10 does something like this. Instead of a MM he uses PONAX to collect distributions.

[retiredat48]

Chahta,...IMO it makes no difference what you are asking...moving money around within the IRA.

You do not have to "prepare" in any advance time up-front to make withdrawals. Simply take it when you need it, and you will know from which funds to go to cash for the withdrawal.

And if you don't really need this money to spend, then the default position is to wait until December to make RMDs so you have 11 months minimum of additional tax-free growth time.

An example...my youngest brother just retired, and we converted the portfolio to an income themed one. Some has dividends taken in cash; some reinvested. Like, he has started reinvesting the high yield cef, PDI monthly dividend in an IRA. He gets a discount to price. But anytime he wants to use this money, he will simply sell some shares of PDI, going to a settlement MM Fund...then withdraw monies the next day or two. It's not rocket science.

R48

[liftlock]

I start thinking about my RMDs during the first quarter of the year as part of estimating my income and income tax obligation for the year.  I try to plan Roth IRA conversions, and determine how my RMD will be allocated among spending, QCDs, Income Tax withholding, and additions to taxable account savings.  One of my goals is to avoid filing estimated income tax payments.

Spending, tax withholding, and QCDs require cash which I accumulate in my T-IRA as a result of not reinvesting dividends.  I currently keep a one years of cash in my T-IRA  money market fund so that I don't have to sell shares to fund my RMD cash needs if the market should decline.  I track my estimated monthly cash flow from dividends as part of this.  All dividends flow into my money market account.  No dividends are reinvested automatically. 

I withdraw cash from my T-IRA as it is needed for spending throughout the year.  I try to complete my QCDs by the end of the third quarter.  

I try to delay making in income tax withholding payments as late as possible in the year.  However, if the market declines substantially, I will accelerate all of my RMDs so that I can do Roth IRA conversions of in-kind shares while they are down in price. 

[bruno]

I have a inherited IRA from my dad and have to take it every year. My wife still works so the RMD is used to fund my $7500.Roth IRA, What left is used to pay the taxes.

[steelpony10]

Jun 17, 2023 13:19:37 GMT Chahta said:

I am curious how posters are handling RMDs. Are you reinvesting then selling shares at the end of the year or are you accumulating cash from distributions to sell? Obviously there are pros and cons for each.

      We’ve taken out about 20% more then our RMD from the start in monthly cash installments and will continue to do so. 

      Having the highest yield or cash distributions situated in a TIRA plus keeping value growth as low as one can tolerate allows for that.

      Tax control for a longer time along with extended compounding longer accelerates income growth over a longer period as an added benefit.

[yogibearbull]

steelpony10 , "We’ve taken out about 20% more then our RMD from the start in monthly cash installments and will continue to do so."

Doesn't that conflict with the rule that the first withdrawals tax-deferred a/c are treated as RMDs? It may matter only if the withdrawals go into something prohibited, e.g. new IRA contributions, Roth Conversions, DAFs (if QCD intentions), etc.

[retiredat48]

Jun 18, 2023 13:00:28 GMT yogibearbull said:

steelpony10 , "We’ve taken out about 20% more then our RMD from the start in monthly cash installments and will continue to do so."

Doesn't that conflict with the rule that the first withdrawals tax-deferred a/c are treated as RMDs? It may matter only if the withdrawals go into something prohibited, e.g. new IRA contributions, Roth Conversions, DAFs (if QCD intentions), etc.

yogibearbull,...I don't understand the question, Yogi.  Are you saying one cannot do a Roth conversion in January...followed later by the full RMD distributions??  

And one can take an RMD and use that money to go into a working spouse IRA...no?

R48

[yogibearbull]

retiredat48, taking all RMDs first and then additional withdrawals to do stuff is fine. But steelpony10, as I understood, is taking MONTHLY withdrawals that are (1/12)* (Annual RMD + 20% of RMD) or 0.10*(Annual RMD) per month. That MAY lead to complications.

[hondo]

Jun 17, 2023 17:39:18 GMT Chahta said:

Thanks all. But what I was thinking about is what to do before withdrawal. Do I collect distributions and put into a MM fund inside the TIRA? Or reinvest all distributions and then sell shares to fund the RMD? If reinvesting the distributions you could see declines as in 2022. Or another possibility is reinvesting and taking "in kind" distributions.

But if I was to use the RMDs to spend would it be better to take them in cash from the MM fund in the TIRA? Yes I have a cash buffer in my taxable account as R48 mentions. I think steelpony10 does something like this. Instead of a MM he uses PONAX to collect distributions.

We reinvest distributions and them reinvest the RMD when it comes our, except for the QCD.  When we make our annual QCDs, we invest a like amount of new cash into our taxable funds.

[judger]

Jun 17, 2023 13:19:37 GMT Chahta said:

I am curious how posters are handling RMDs. Are you reinvesting then selling shares at the end of the year or are you accumulating cash from distributions to sell? Obviously there are pros and cons for each.

We take all RMDs at the very end of the calendar year for income, taxes, Roth conversions, QCDs after we discovered them in recent years and maybe a little reinvest of excess.

[Chahta]

Jun 18, 2023 20:09:39 GMT yogibearbull said:

retiredat48, taking all RMDs first and then additional withdrawals to do stuff is fine. But steelpony10, as I understood, is taking MONTHLY withdrawals that are (1/12)* (Annual RMD + 20% of RMD) or 0.10*(Annual RMD) per month. That MAY lead to complications.

I am curious where the complications are. If the amount taken is on your 1040 isn’t that all that matters?

[yakers]

Jun 17, 2023 16:46:41 GMT retiredat48 said:

.....

Lastly, many say you cannot time the market. OK...but investors taking RMDs must realize you have to time the market, generally EACH YEAR, if you live on distributions like I do. You must sell some stock funds at times to replenish your bond funds, if you are taking everything from bonds. There's no escaping this fact. Otherwise, your stock/bond allocation gets distorted. Better to do such timing strategically...with a plan.

The above is what some newly arrived to RMDs discover and need to know.

IMHO one has to look at their AA and adjust RMDs to it if things get out of balance or one wishes to change their AA. My RMDs/QCDs are not large (<$100K) so I just tend to take them from the best performing funds ( largest part of portfolio is VG balanced funds). I do tend to take 75%+ of QCDs early as the charities I support really like getting the funds early in the year, not purely a financial decision.

[retiredat48]

Jun 20, 2023 16:04:06 GMT yakers said:

Jun 17, 2023 16:46:41 GMT retiredat48 said:

.....

Lastly, many say you cannot time the market. OK...but investors taking RMDs must realize you have to time the market, generally EACH YEAR, if you live on distributions like I do. You must sell some stock funds at times to replenish your bond funds, if you are taking everything from bonds. There's no escaping this fact. Otherwise, your stock/bond allocation gets distorted. Better to do such timing strategically...with a plan.

The above is what some newly arrived to RMDs discover and need to know.
IMHO one has to look at their AA and adjust RMDs to it if things get out of balance or one wishes to change their AA. My RMDs/QCDs are not large (<$100K) so I just tend to take them from the best performing funds ( largest part of portfolio is VG balanced funds). I do tend to take 75%+ of QCDs early as the charities I support really like getting the funds early in the year, not purely a financial decision.

R48 reply: Very good, yakers. Sound guidance...glad we are on the same page.

R48