When to make IRA withrawals

[archer]

I see a lot of models based on an annual withdrawal in the beginning of the year. Does anyone actually do this? It makes more sense to me to withdrawal monthly or quarterly. For one thing, this avoids the need to file the 2270 equalization of income. Also it allows for a more timely response to market conditions for those using dynamic withdrawal strategies. 

Any thoughts?

[Mustang]

It really depends upon one's own goals and needs.  I don't try to time the market. I take monthly withdrawals and I don't have to do anything. American Funds calculates the RMD. They take out taxes and make monthly deposits to my bank. The next year they make adjustments and do the same automatically.  For the retiree its just like getting a monthly social security deposit. Also like social security, I get a 1099 for my income tax return each year. It can't be easier than that.

[steelpony10]

archer ,

     As Mustang , states I pretty much do things the same way.

      The reason to take a lump sum might be to pay that years estimated taxes using federal and state vouchers personally once a year. If you take lump sums quarterly you do that 4 times.

       An alternative to estimates is to just pay the previous years taxes instead of the headaches of estimates. This sounds like what Mustang , is having done automatically.

        Somehow you need to get 90% of the current estimated taxes or 100% of the previous years taxes withheld each year.

[Mustang]

steelpony10, is correct. The form setting up RMDs asked if I wanted taxes deducted. I said yes and gave them the amount. Nothing could be easier.

[archer]

The models I was referring to for safe withdrawal rates figuring an annual withdrawal, I am guessing are done that way for ease of calculation. It does seem rare that anyone would do that. I could see how maybe some folks would move a portion to cash at year end or beginning as a way of locking in an annual withdrawal amount, and as a means of rebalancing, but not actually taking money out of their account.

[steelpony10]

Nov 21, 2023 16:47:55 GMT archer said:

The models I was referring to for safe withdrawal rates figuring an annual withdrawal, I am guessing are done that way for ease of calculation. It does seem rare that anyone would do that. I could see how maybe some folks would move a portion to cash at year end or beginning as a way of locking in an annual withdrawal amount, and as a means of rebalancing, but not actually taking money out of their account.

        You have monthly bills, monthly SS and whatever else as income or obligation. Add it all up. You take out the shortage from a TIRA or an RMD or a combo of both monthly, quarterly, yearly. That’s your withdrawal “requirement”. Forget that 4% stuff it is what you made it. That right there is your required withdrawal rate.

         Whether it’s safe is your personal problem. As an amateur portfolio manager you have to manage. You have to reconcile your retirement lifestyle to your expenses and income reality. Cut back the expenses or find even more reliable cash flow, dividends, distributions etc. if needed. You may need to cast off the allocation handcuffs to do it.

          Any adjustments one makes have unknown outcomes for all of us. 

[Mustang]

Nov 21, 2023 16:47:55 GMT archer said:

The models I was referring to for safe withdrawal rates figuring an annual withdrawal, I am guessing are done that way for ease of calculation. It does seem rare that anyone would do that. I could see how maybe some folks would move a portion to cash at year end or beginning as a way of locking in an annual withdrawal amount, and as a means of rebalancing, but not actually taking money out of their account.

My guess is that the models do that for simplification.  Most of the data supporting the model is annualized so assuming a single withdrawal makes calculations simpler.  I've been playing with Portfolio Visualizer lately.  It calculates an annual withdrawal even though a monthly withdrawal amount is entered..  Under the hood it calculates an annual withdrawal, assumes it is moved to cash or cash equivalents, ignores any interest from those assets and divides that by 12 for the monthly calculations.

I did the same thing when setting up a simplified system for my wife to follow when taking withdrawals from our taxable accounts . I used a spreadsheet.  Annual returns and inflation rates are easily found on the internet.  The spreadsheet calculates one year at a time based on that annual data.  It assumes that is moved to a money market fund in January and that monthly withdrawals come from the money market fund not the mutual funds.

But, withdrawals and spending are not the same thing.  Cash, or cash equivalents, are the buffer between the two.  Even when taking monthly withdrawals it would be wise to not spend it all but to set some aside for a rainy day.

[fred495]

I just take the total yearly RMD amount out of my IRA account in December and transfer it to my non-IRA account before 12/31. All interest or capital gains earned during the year on the RMD amount are still tax free.

Fred

[archer]

fred495, Ah! I forgot about RMDs when I posted above about keeping the money in the IRA and just moving some to cash. For most people hopefully the majority of their retirement will be subject to RMDs and therefor be required to pull the money out of the IRA.

[yakers]

I pretty much do wife & I RMDs very early in the year as they are mostly QCDs and the charities we support really like getting the money early in the year.

[liftlock]

Nov 21, 2023 6:31:14 GMT archer said:

I see a lot of models based on an annual withdrawal in the beginning of the year. Does anyone actually do this? It makes more sense to me to withdrawal monthly or quarterly. For one thing, this avoids the need to file the 2270 equalization of income. Also it allows for a more timely response to market conditions for those using dynamic withdrawal strategies. 

Any thoughts?

Do you mean IRS form 2210?  Paying estimated income taxes via tax withholding allows a taxpayer to ignore the timing of their tax payments as long as safe harbor rules are satisfied.  This not the case when making estimated tax payments where the taxpayer needs to be concerned about the timing of their tax payments unless the safe harbor rules are satisfied by 4 equal estimated tax payments.  When safe harbor rules are 100% satisfied through tax withholding, the withholding payments can be made at any time during the tax year.  This because the IRS considers tax withholding payments to be made evenly throughout the year regardless of when the payments are actually made.

I accumulate cash from dividends to fund my RMDs. I take withdrawals from my IRA when I need the money. I use withholding to pay my taxes so that I can avoid having to make quarterly estimated tax payments.