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Required Minimum Distributions
Old 04-13-2016, 03:42 PM   #1
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Required Minimum Distributions

DW and I are having a discussion on RMD's. Sometime in 2016 I will have to take a RMD from my IRA which is in the Vanguard Wellesley Admiral fund. We use the RMD's to pay property taxes, income taxes, DW's "necessities", and maybe buy another CD, etc. I say that regardless of where the market is at the moment, it won't make a difference whether I take the RMD when the market is on the high side or the low side. DW thinks I would be better off taking the RMD now while the market is going up rather than four or five months from now assuming the market will take a down turn. Kind of like market timing. Maybe it makes sense to take the RMD on the high side but the only advantage would be if you know the market will be lower for the rest of the year so your fund could buy more. Your thoughts please. Is this confusing?
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Old 04-13-2016, 03:48 PM   #2
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...but the only advantage would be if you know the market will be lower for the rest of the year ...
And if you're insightful enough to know that the market will be lower for the rest of the year and really believe it then perhaps you should buy a whole bunch of S&P puts.

We have my Mom's RMD set to happen on her birthday each year but she doesn't spend it as she had other sources of income that exceed her needs.
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Old 04-13-2016, 03:56 PM   #3
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Selling at the highest share price of the year is optimal because then you can meet the RMD by selling the fewest shares. Selling during a high period is good too. Guessing when the annual high will happen is, well, a guess.
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Old 04-13-2016, 04:02 PM   #4
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DW and I are having a discussion on RMD's. Sometime in 2016 I will have to take a RMD from my IRA which is in the Vanguard Wellesley Admiral fund. We use the RMD's to pay property taxes, income taxes, DW's "necessities", and maybe buy another CD, etc. I say that regardless of where the market is at the moment, it won't make a difference whether I take the RMD when the market is on the high side or the low side. DW thinks I would be better off taking the RMD now while the market is going up rather than four or five months from now assuming the market will take a down turn. Kind of like market timing. Maybe it makes sense to take the RMD on the high side but the only advantage would be if you know the market will be lower for the rest of the year so your fund could buy more. Your thoughts please. Is this confusing?
This is an easy one Johnnie. Just take a look at your crystal ball. If it says that Wellesley will be lower later in the year, sell now. If it says that Wellesley will be higher later in the year, sell then.

No problem..........
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Old 04-13-2016, 04:25 PM   #5
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One other consideration is estimated taxes. If you do the RMD early in the year, you might need to cover that with your estimated taxes in that quarter. If you have taxes withheld, probably not an issue (unless the withholding wasn't enough?).

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Old 04-13-2016, 04:26 PM   #6
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Johnnie......

OK, gave it a bit more thought. These options come to mind for your consideration.....

1. Wellesley has a great historical performance record. Unless you have a crystal ball that says differently, the odds of it being higher later in the year than now are good. So, take a chance and wait. If that turns out to be wrong, see #3.

2. If making a decision is giving you a headache, sell 20% (or some amount) periodically over the balance of the year. This assumes you don't pay commissions to sell.

3. You only want to sell enough to fund your RMD, so probably 5% to 7% depending on where you are in your RMD journey. Selling that amount of a position is a relatively minor move so don't worry about it and sell whenever it's convenient. You can't optimize everything to the nth degree! It would be a much more important decision if you were selling it all or even half of it.

Relax. Enjoy your retirement!
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Old 04-13-2016, 04:32 PM   #7
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Why not take the Wellesley quarterly dividends as distributions, then at year end, "top up" by selling shares? That's my plan when I hit RMD age in a couple of years.

Not a perfect solution but does help reduce the "when do I sell?" quandary a bit.
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Old 04-13-2016, 05:20 PM   #8
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One other consideration is estimated taxes. If you do the RMD early in the year, you might need to cover that with your estimated taxes in that quarter. If you have taxes withheld, probably not an issue (unless the withholding wasn't enough?).

-ERD50
Good point. There's a slight negative to paying the tax earlier involving the opportunity cost of the money you fork over to uncle.

I haven't starting RMD's yet, but they're in sight. I plan on managing the IRA to have the appropriate amount of cash (or equivalent) available and sell late in the year having my broker withhold the appropriate amount of taxes at the time of the withdrawal.

BTW, regarding your comment "unless the withholding wasn't enough?), since it would be the same amount you'd have sent in if you went the est tax payment route, it wouldn't seem to make a difference. Your broker withholds the amount you tell them to withhold which should be the same as you would have sent in as an est tax payment.
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Old 04-13-2016, 06:18 PM   #9
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I think I'm all set for RMD's, which start for me in 2018. I only have to get them from the TSP, which has very restrictive withdrawal rules. I have been getting equal monthly payments from the TSP all along to live on but couldn't just impulsively withdraw other quantities at odd times, for example. The TSP website says,
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If you are already receiving a series of monthly payments from your TSP account when you turn 70˝, your monthly payments will be used to satisfy the IRS minimum distributions requirement. If the total amount of your monthly payments does not satisfy the requirement, the TSP will issue a supplemental payment for the remaining amount in December.
According to my computations my monthly payments will satisfy the RMD requirement. Still, I feel so lucky that the TSP will step in and take care of it if there is any doubt.
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Old 04-13-2016, 06:25 PM   #10
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DW thinks I would be better off taking the RMD now while the market is going up rather than four or five months from now assuming the market will take a down turn.
And it's important to you that you win this argument because ...?

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Old 04-13-2016, 07:02 PM   #11
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Here's an interesting variation for those who have crystal balls. Suppose your crystal ball had 20/20 vision and you did not need the RMD funds to spend but
could reinvest the proceeds in low cost index funds. You know the market is going to tank from 100 (relative #) to 4 so that you could take out your whole RMD of 4 at the low point . Would you take the RMD out at the high point or the low?
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Old 04-13-2016, 07:17 PM   #12
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To me the market seems pretty high or at minimum fairly valued. The run-up and conclusion to the presidential race later this year will cause market volatility IMO, no matter who ends up the nominees or the eventual president. If you know you need to take some out this year, I would do it sooner rather than later. I think the upside (if any) by waiting is minimal and the downside could be pretty large.
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Old 04-13-2016, 07:29 PM   #13
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I think I'm all set for RMD's, which start for me in 2018. I only have to get them from the TSP, which has very restrictive withdrawal rules. I have been getting equal monthly payments from the TSP all along to live on but couldn't just impulsively withdraw other quantities at odd times, for example. The TSP website says, According to my computations my monthly payments will satisfy the RMD requirement. Still, I feel so lucky that the TSP will step in and take care of it if there is any doubt.

Thanks W2R. I didn't know about this. So would this series of withdrawals satisfy RMD's for funds held outside of TSP, or do you need to handle those separately if your TSP withdrawals are not enough (can you tell them an amount to withdraw for the supplemental? TSP withdrawals are quirky.


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Old 04-13-2016, 07:44 PM   #14
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Why not take the Wellesley quarterly dividends as distributions, then at year end, "top up" by selling shares? That's my plan when I hit RMD age in a couple of years.

Not a perfect solution but does help reduce the "when do I sell?" quandary a bit.
Sounds good, but someone on this forum keeps reminding us that "Numbers is hard." And I suspect they will just get harder as I reach RMD age (which Fidelity keeps calling "MRD", and they seem to be the exception?). Add up all the divs, then subtract that from your RMD - oh no, maths!

More seriously, one could just forget or get distracted. I kind of like the idea of setting up a withdraw at the start of the year, to be taken out on a pre-determined date.

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Good point. ...
BTW, regarding your comment "unless the withholding wasn't enough?), since it would be the same amount you'd have sent in if you went the est tax payment route, it wouldn't seem to make a difference. Your broker withholds the amount you tell them to withhold which should be the same as you would have sent in as an est tax payment.
I dunno. I haven't had to take them yet (though I did set it up for my MIL, but her tax guy calcs the estimated payments and tells her to have nothing withheld), so I wasn't sure if brokers had a set % (X% or nothing?) or if they would all take input from you.

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Old 04-13-2016, 07:58 PM   #15
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More seriously, one could just forget or get distracted. I kind of like the idea of setting up a withdraw at the start of the year, to be taken out on a pre-determined date.
Which one could also just forget or get distracted.

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Old 04-13-2016, 08:00 PM   #16
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Thanks W2R. I didn't know about this. So would this series of withdrawals satisfy RMD's for funds held outside of TSP, or do you need to handle those separately if your TSP withdrawals are not enough (can you tell them an amount to withdraw for the supplemental? TSP withdrawals are quirky.


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My (limited) experience is that 401K plans will do this.......perhaps because the RMD must be satisfied from each and every 401K plan so the custodian knows how to calculate that. It is different for TIRAs and 403b plans where it is possible to take the RMD from only one account to satisfy the RMD for all so the custodian doesn't necessarily know what you want to do. Don't know about TSP.....is it considered a 401K?

It is comforting to have that default backup.
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Old 04-13-2016, 08:38 PM   #17
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For my mom we do a monthly distribution... and have 20% taxes withheld...


Gets rid of any market timing question....
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Old 04-13-2016, 08:41 PM   #18
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TSP has its own quirky set of rules. You can only make one partial withdrawal in your lifetime. Anything else must complete withdrawal or a series of payments I think.


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Old 04-13-2016, 08:59 PM   #19
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Thanks W2R. I didn't know about this. So would this series of withdrawals satisfy RMD's for funds held outside of TSP, or do you need to handle those separately if your TSP withdrawals are not enough (can you tell them an amount to withdraw for the supplemental? TSP withdrawals are quirky.


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In my case, all the TSP knows or cares about is money in my TSP. All my RMDs are based on my TSP money only since I don't have any other tax sheltered accounts (other than a Roth IRA).

But if (since?) that is not the case for you, then I'm sorry, you will have more work to do in order to figure out your RMDs and how to get them paid.


Here's the link to the TSP web page where I got the paragraph I quoted, as a start. It has more information and links and so on.

https://www.tsp.gov/PlanParticipatio...derations.html

You are SO right that TSP withdrawals are quirky. That's the perfect word for their withdrawal restrictions.
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Old 04-13-2016, 09:00 PM   #20
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Why not take the Wellesley quarterly dividends as distributions, then at year end, "top up" by selling shares? That's my plan when I hit RMD age in a couple of years.

Not a perfect solution but does help reduce the "when do I sell?" quandary a bit.
I didn't realize you could do this: we are already taking all distributions, but that's now my plan too when RMDs start.
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