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Does RMD decrease your portfolio
Old 01-02-2019, 08:00 AM   #1
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Does RMD decrease your portfolio

With another RMD thread it brought this question to mind. I also know there is ways to minimize taxes but saying just to take when required how does it effect your NW portfolio?

I know there is to many variables with this question but does taking RMD at giving age decrease your net worth?

The scenario would be when you get the distribution it would be reinvested. For some here that have been taking RMD, might have a feel for their NW if it decreases or does it increase?

It would seem as we get older and we start the RMD we would be worth less because of paying taxes on that money and inflation etc..

What is your thoughts going off of history?
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Old 01-02-2019, 08:07 AM   #2
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Just taking an RMD won't decrease Net Worth (other than having to pay the taxes). It's only when you actually spend the money that Net Worth would go down.
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Old 01-02-2019, 08:14 AM   #3
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No. If you haven't valued tax advantaged assets at their post taxes value all along, then it will appear your net worth was reduced by taking the RMD & paying taxes on it. But that just wasn't the case to begin with.
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Old 01-02-2019, 08:21 AM   #4
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No. If you haven't valued tax advantaged assets at their post taxes value all along, then it will appear your net worth was reduced by taking the RMD & paying taxes on it. But that just wasn't the case to begin with.
I don't use the "after tax" value of my deferred assets in my NW calculations, but once I either withdraw or convert - my NW will be reduced by the taxes paid. I really don't know what exactly my tax burden will be on my deferred assets, but in the back of my head I know they are worth less than what my NW statement says.
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Old 01-02-2019, 08:33 AM   #5
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To each their own. I devalue pre-tax assets by the percentage I expect our taxes will be even knowing of course that will be incorrect no matter what I choose. But more so I don't want to overly deceive myself.
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Old 01-02-2019, 08:51 AM   #6
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To each their own. I devalue pre-tax assets by the percentage I expect our taxes will be even knowing of course that will be incorrect no matter what I choose. But more so I don't want to overly deceive myself.
Effectively I believe I am doing the same as you. For example when I input expenses into a retirement calculator, I use a projected projected effective tax rate as part of the expenses.

So I am addressing it from the expense side vs. a reduction of the asset side.
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Old 01-02-2019, 09:23 AM   #7
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I don't use the "after tax" value of my deferred assets in my NW calculations, but once I either withdraw or convert - my NW will be reduced by the taxes paid.
I do likewise, but I also have an "expected value" right there next to it. I find it helpful to remind me that there are taxes to pay.

Clearly a $1M ROTH is more valuable more than a $1M tIRA.
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Old 01-02-2019, 09:32 AM   #8
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Clearly a $1M ROTH is more valuable more than a $1M tIRA.
debatable, but in most cases likely. Welcome to 2019.
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Old 01-02-2019, 11:25 AM   #9
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It really is a hard question to answer to many unknowns. I would like to start taking out of my 401K and IRA but then that causes more issues right now. I treat those accounts as untaxed in my value of worth because it is my value at the given time. When I start to receive RMD then I will have to make those changes at that time for my NW.

With all the years of not paying taxes on that money not sure if you come out ahead or not. If you would pay as you go (taxes) on your retirement you might be ahead in the game. I have not sat to actually figure that out.

I'm not going to look forward to taking the distributions. LOL
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Old 01-02-2019, 11:45 AM   #10
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With all the years of not paying taxes on that money not sure if you come out ahead or not. If you would pay as you go (taxes) on your retirement you might be ahead in the game. I have not sat to actually figure that out.

I'm not going to look forward to taking the distributions. LOL
There are any number of charts that show you are ahead if the gains are not taxed until withdrawal.
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Old 01-02-2019, 01:13 PM   #11
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I must be an outlier.

My RMD starts in 3 years but my calculated RMD is lower than my current IRA withdrawals; almost half of what I usually withdraw now.

Question though: I will be 70 1/2 in mid-December 2022. Must I take/file RMD in that year or would I wait until 2023?

If in 2022, would that be a double withdrawal (i.e. withdraw living expenses for 2022 and then a full RMD the last half of December)?
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Old 01-02-2019, 01:17 PM   #12
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IIRC the RMD divisor is 27.4 for a 70 year old. That equates to a 100 / 27.4 = 3.65% withdrawal on the amount that is in the traditional IRA. Assuming a 50% cumulative tax rate, that means that a 70 year old will see their net worth drop by about 1.82% of their traditional IRA value that year.

If that person reinvests the remainder of the withdrawal and the market returns it's historical average, their net worth probably goes up that year. The next year, age 71, their RMD will probably also go up as the divisor is reduced by 1 and their traditional IRA has probably recovered the 3.65% withdrawal from the age 70 RMD.
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Old 01-02-2019, 01:19 PM   #13
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...........................................
Question though: I will be 70 1/2 in mid-December 2022. Must I take/file RMD in that year or would I wait until 2023?
For the 1st yr only, you can delay until Apr.1 of next yr. However if you do that you still have to take the next yr on time so you will have 2x income that yr.
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Old 01-02-2019, 01:25 PM   #14
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I must be an outlier.

My RMD starts in 3 years but my calculated RMD is lower than my current IRA withdrawals; almost half of what I usually withdraw now.

Question though: I will be 70 1/2 in mid-December 2022. Must I take/file RMD in that year or would I wait until 2023?

If in 2022, would that be a double withdrawal (i.e. withdraw living expenses for 2022 and then a full RMD the last half of December)?
Regarding your first question, you can take your first RMD by December 31, 2022 or by April 1, 2023. Your first RMD would be based on your account balance on 12/31/2021. However, if you wait until April 1, 2023, you will still have to take your second RMD by December 31, 2023, which may not be advantageous from an income tax perspective because you would have two RMDs in a single year.

Regarding your second question, any withdrawals you make in 2022 can be counted towards your RMD because they occur in the year in which you turn 70 1/2. You do not have to wait until your your mid-December half-birthday to take your first RMD.

(Note that the 70 1/2 rule is different from the 59 1/2 rule - for the 59 1/2 rule I believe you actually have to wait until you are 59 1/2 before taking penalty-free withdrawals from IRAs.)
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Old 01-02-2019, 01:35 PM   #15
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Regarding your second question, any withdrawals you make in 2022 can be counted towards your RMD because they occur in the year in which you turn 70 1/2. You do not have to wait until your your mid-December half-birthday to take your first RMD.
Aha! Thanks!
That's what I was hoping and it does sound fair. I'm assuming that my IRA administrator (TR Price) will provide me with the right forms to fill out at that time; they know how old I am.
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Old 01-02-2019, 01:38 PM   #16
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IIRC the RMD divisor is 27.4 for a 70 year old. That equates to a 100 / 27.4 = 3.65% withdrawal on the amount that is in the traditional IRA. Assuming a 50% cumulative tax rate, that means that a 70 year old will see their net worth drop by about 1.82% of their traditional IRA value that year.

If that person reinvests the remainder of the withdrawal and the market returns it's historical average, their net worth probably goes up that year. The next year, age 71, their RMD will probably also go up as the divisor is reduced by 1 and their traditional IRA has probably recovered the 3.65% withdrawal from the age 70 RMD.
That is interesting and well explained. Thanks
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Old 01-02-2019, 01:57 PM   #17
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With another RMD thread it brought this question to mind. I also know there is ways to minimize taxes but saying just to take when required how does it effect your NW portfolio?

I know there is to many variables with this question but does taking RMD at giving age decrease your net worth?

The scenario would be when you get the distribution it would be reinvested. For some here that have been taking RMD, might have a feel for their NW if it decreases or does it increase?

It would seem as we get older and we start the RMD we would be worth less because of paying taxes on that money and inflation etc..

What is your thoughts going off of history?
2018 is my first year for meeting RMD requirements. Taking RMDs is just moving money from the TSP(=401K), paying taxes on it, and putting it elsewhere. First it goes to my bank account, where I spend any of it that I need to spend on regular living expenses. Then, any excess will get invested in my taxable accounts.

I have been getting equal monthly payments from the TSP all along, which happen to be sufficient to cover the RMD requirements so I don't foresee much difference in anything for me. These payments count as part of my annual withdrawal from my investment portfolio. I have always paid taxes on that amount withdrawn from the TSP for each year of retirement.
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Old 01-02-2019, 02:14 PM   #18
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I do likewise, but I also have an "expected value" right there next to it. I find it helpful to remind me that there are taxes to pay.

Clearly a $1M ROTH is more valuable more than a $1M tIRA.
True, a $1M TIRA at RMD age will result in some taxable income. But, some couples with smaller balances and maybe just some SS income might end up paying zero taxes. For example, a 70 year old (MFJ) with $657K in TIRA (RMD = $24K) and $20K SS wouldn't pay any federal income tax - if that's all they have. The majority of retirees don't have that much in deferred savings.
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Old 01-02-2019, 02:26 PM   #19
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Our RMDs will cause a drop in net worth due to taxes paid.
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Old 01-02-2019, 02:37 PM   #20
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DW's birthday was also in December, but we took the first RMD that year. Otherwise we would have to take 2X in one year.
Remember, you do NOT have to cah out your holdings. You can just transfer the RMD amount to a taxable account. That can be done over the phone.
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