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Minimum Required Distributions ?
Old 02-02-2011, 02:53 PM   #1
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Minimum Required Distributions ?

We have more than enough in cash in our personal accounts after downsizing. Now I am looking at what to do with IRA withdrawals and am thinking of withdrawing 'in kind', transferring mutual fund shares.

Any thoughts, advise folks?
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Old 02-02-2011, 04:47 PM   #2
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Assuming you have other cash to pay the taxes, it should be a wash if you take the cash from the IRA and buy the funds again (assuming no load funds). Now if we are talking load funds its a different story. Basically if you took the in kind or sold and got the cash, you are likely in the same place at the end of the day. (unless there are commissions involved)
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Old 02-02-2011, 06:17 PM   #3
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No load funds, I am dumb but not stupid. I do have a couple ETFs where there would be a transaction fee so maybe I wouldn't want to move those.

I need to invest the cash outside of the IRAs and not get fancy.
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Old 02-02-2011, 06:35 PM   #4
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No load funds, I am dumb but not stupid. I do have a couple ETFs where there would be a transaction fee so maybe I wouldn't want to move those.

I need to invest the cash outside of the IRAs and not get fancy.
Nothing difficult about taking what you need to take in kind. No real reason not to do that. Your broker will true it up with a little cash to get the right amount for you. An example of why this can be very helpful is a mutual fund that I own that has institutional class shares, and investor class. I am grandfathered into institutional class, though I do not have the minimum $100K invested. If I sold and rebought, I would loose this privilege. I know, it's incredibly stupid of me to own this mutual fund with >.00000005% expense ratio, but have mercy on an inexperienced buffoon .

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Old 02-02-2011, 06:48 PM   #5
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You may wish to examine the tax-efficiency of the funds once they get outside into a taxable account. Usually folks will put a tax-inefficient fund in tax-advantaged, such as a bond fund in an IRA. They will put a tax-efficient fund such as large-cap foreign in taxable. This can save an extra 1% a year on the fund assets if done properly.

So if you move assets from a bond fund in tax-advantaged to a bond fund in taxable, that will cost you each and every year. You can usually remove the most tax-efficient fund shares from the IRA and put them in taxable without changing your asset allocation.

There was an update this week to the tax-efficiency info at Principles of Tax-Efficient Fund Placement - Bogleheads that you may find helpful.
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Old 02-02-2011, 07:45 PM   #6
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We have more than enough in cash in our personal accounts after downsizing. Now I am looking at what to do with IRA withdrawals and am thinking of withdrawing 'in kind', transferring mutual fund shares.

Any thoughts, advise folks?
Are you saying that you don't have the financial need for the RMD but have to take an RMD because of age? In that case you could consider a "qualified charitable distribution": Retirement Plans FAQs regarding IRAs

Or are you saying that you could make a conventional IRA withdrawal without penalty but are not yet required to take RMDs? In that case I guess you could consider a Roth conversion. That can be done in-kind.

I don't remember the answer to this in-kind withdrawal question the last time it came up, but I remember thinking that the IRS would require you to cash out your withdrawal because it would otherwise be a royal PITA for the IRS to document the after-tax basis of your in-kind shares. I'm not saying that it's not possible, just that it's not allowed by current legislation.
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Old 02-02-2011, 09:25 PM   #7
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We are required by age to take the minimum required distribution but young enough to hold on to the distribution to meet our needs in the future.
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Old 02-02-2011, 09:43 PM   #8
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Thought about converting some to Roths? Or at least enough to fill up your current marginal bracket.
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Old 02-02-2011, 10:07 PM   #9
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Thought about converting some to Roths? Or at least enough to fill up your current marginal bracket.
RMDs cannot be contributed to Roths, if that is what you meant. One can always do both, but both streams are taxable ordinary income.

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Old 02-02-2011, 11:02 PM   #10
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RMDs cannot be contributed to Roths, if that is what you meant. One can always do both, but both streams are taxable ordinary income
I was thinking of a conversion. Is that not permitted either (with taxes paid from cash on hand for example)?
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Old 02-02-2011, 11:18 PM   #11
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I was thinking of a conversion. Is that not permitted either (with taxes paid from cash on hand for example)?
No, RMDs must be taken out of sheltered accounts altogether. I am currently doing conversions. When my RMDs start they will be in addition to any conversions I might do, and taxes will need to be paid on both types of withdrawal.

If a person were still working when RMDs start, she would be eligible to make Roth contributions on the basis of her earned income. So I suppose since money is fungible, in effect you could turn around and make a contribution with the RMD funds. But that would actually be a contribution not a conversion, just as any employed person might make a contribution based on her earned income.

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Old 02-03-2011, 10:54 AM   #12
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We are required by age to take the minimum required distribution but young enough to hold on to the distribution to meet our needs in the future.
So I think what I'm hearing is "keeping the assets". I wonder if there's a sweet spot where the charitable donation (giving up assets) is the same amount as what you'd be paying in taxes on the RMD (losing assets).

I think you have to liquidate and withdraw instead of transferring in-kind. The best place to find the answer is probably Ed Slott's IRA discussion board, where the CPAs hang out to answer exactly this kind of question:
Ed Slott and Company IRA Discussion Forum • Index page

I guess if you really wanted to play RMD arbitrage you could try to sell the MF shares just before a distribution (or at the peak of the market), take the RMD, and then buy the MF shares from your taxable account while the price is temporarily depressed-- or wait for the peak to revert to the mean.

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I was thinking of a conversion. Is that not permitted either (with taxes paid from cash on hand for example)?
IIRC a conversion can be done while taking RMDs, but the RMD has to come out first and then the conversion can be done on the remainder.

They both count as income, so I suspect the maneuver is pretty unpopular.
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