when taking distributions how does the selling work

[kongmen]

Can someone walk me through how it all works when taking distributions from a qualified retirement account? How is it determined which shares and how many to sell? All I know about this process is that the recipient receives a check in the mail. I have a 457 deffered comp plan (civil service plan) and a roth ira. Thanks for any replies.

[pb4uski]

You determine which investments and how much to sell. I think many people would rebalance about the same time and that would determine which investments to sell. I would probably rebalance and have sufficient cash in the account to meet any withdrawal need. How many to sell would be based on how much of a distribution you need/want. The you can either transfer funds from the tax-deferred account to your bank account or have them mail you a check.

I think most companies have CSRs who can help you through the process.

[kongmen]

When it comes to selling I don't know if that is somthing that I would have to be involved in every month or could I hash that out with a program admin. for the year and then revisit the next year?

Does the process of taking distributions cost money ie. selling shares? Or more to the point having shares sold on your behalf.

[pb4uski]

I think most people do it once a year. You could probably set up some automatic withdrawal program but would have to specify which investment to sell and an amount each month and the administrator would sell the number of shares needed to pay the withdrawal.

Cost depends on the type of account you have and what fees the administrator charges.

[kaneohe]

The details probably vary from plan to plan so you should talk to the administrators of your plans. Be aware too that, in reality, you will be talking to one human being who represents the plan and who may lead you astray so you may want to give yourself some lead time to establish the details.

I just started taking withdrawals this yr so the scars are still fresh. One rep told me I could do withdrawals at will via phone.......turns out they don't do custom withdrawals after all and you need to setup via predetermined written instructions. They do allow you to select from which investments the withdrawals come and how much withholding they do.

Another company said I could select which investments to draw from. Turns out , you cannot and withdrawals are pro-rata from all your investments.
They do , however, allowl random withdrawals via the phone thru a rep.

In some cases, if you have only investments (and not cash), if you request a distribution and the broker has to sell to generate cash, they may charge you a transaction fee but if you initiate the sale to generate the cash , possibly there may be no fee (or a lower one).

........so , as in most cases, the answer is : it depends..................

The one good thing I learned is that corporate qualified plans (at least mine) have a default mechanism so that you can't forget your RMD and they will spit it out even w/ no input from you. IRAs typically don't do that since you can pull from any combination of them and the administrators can't read your mind.

[rescueme]

As in anything, there are many options you can take based upon your personal situation and preferences.

DW/me are both retired and draw the majority of our income from our respective retirement accounts at this time (delaying SS until age 66/70).

DW had both a 401(k) and 403(b) accounts during her accumulation years, in addition to her personal TIRA and Roth accounts.

Upon her retirement (early last year), she rolled both accounts into a rollover IRA account at FIDO (her IRA is with VG).

She has an auto-withdrawl set up with VG to make a monthly deposit (e.g. paycheck) to her bank account. At that time, she has taxes taken out. Very easy and similar to getting a paycheck. It also eliminates any tax filing since it comes out of her withdrawl and goes directly to the IRS (no state/local tax for retirement income in our state).

As for me? I also did a rollover of my FIDO 401(k) to a rollover IRA upon my retirement, a bit over six years ago. While I also have a VG IRA (both traditional and Roth, the same as DW) I do a monthly withdrawl directly from my FIDO account, paying taxes at the same time.

The difference being is that I pay for all household expenses which for most folks vary month to month. While DW dosen't change her withdrawls frequently (only once in the past year), my withdrawls vary. For me, this works out better. BTW, you can set up/change an auto-withdrawl (and taxes paid) on VG on-line. With FIDO, it requires a paper form to be sent - a PIA IMHO (and I've let FIDO know).

As far as "selling shares" (for current income)? We don't do that. In preperation for retirement, about 2-3 years before actually retiring, we both sold off our "profits" to cash (actually a MM account held within our respective tax deferred accounts) to ensure we had 4-5 years of gross income (included taxes due upon withdrawl). We did not want to be in a position to have to sell during down market situations which happened several times during our 30+ years of investing. This became very apparent when I retired (early 2007) and the market took a dip at the end of the year and into 2008-09.

We add to our cash accounts (some folks also use short term bonds in the same way) based upon our personal plan. While we had 4-5 years in cash, we've dropped that down to 2-3 years since we are starting to have additonal retirement income over the years (i.e. joint SPIA, DW's two small pensions, my increase in VA disability income, etc.) Actual cash held will be much lower starting next year as our SS starts. While we will maintain the same 2-3 years in cash, the actual amount held will be a very small percentage since we'll have our "guaranteed income sources" firing on all cylinders.

One other thing. Since DW does her withdrawls from VG and I from FIDO, any accumulated cash from her FIDO and my VG accounts are transferred to the other investment company every 1-2 years depending on how much "excess cash" has been accumulated. It's a very simple process and eliminates having to go to two/alternate companies for our monthly income.

It may seem confuing at first, regardless of the method you chose. However after a few cycles (regardless if it be monthly or annually), you learn that it is really no big deal - especially if you do your withdrawls from a cash account rather than thinking about stocks/funds you want to sell every cycle. We've separated the buying/selling of funds from the withdrawl of funds for income. It's two separate and distinct processes and for us, neither impacts the other.

BTW, if you are actually talking about "distributions" rather than "withdrawls", that's another subject entirely and you can just ignore what I wrote. For us? We reinvest all distributions for additional shares in case you were wondering.

Since you asked...

[kongmen]

Rescueme what is fido?

[pb4uski]

fido = Fidelity

[scrabbler1]

Quote:

Originally Posted by kongmen Rescueme what is fido?

Fido is Fidelity Investments.

[kaneohe]

anyone know how that name came about? even google seems stumped.......

[Katsmeow]

We take from DH's IRA. I have money in a 401(k) but we don't draw from it at this time.

Right now we are in a very high withdrawal phase as we have 2 kids in college. I expect that 3 years from now DH's IRA will have less in it that it has at this time.

Basically I look at expenses and figure out how much we need and have set up a monthly withdrawal. Withdrawals come from either the money market or the short term bond fund. It was just the short term bond fund but I put some in money market when I rebalanced several months ago.

If I need extra money I just do a single transfer to our checking account which I do on Vanguard's page. For instances, recently we could save a couple of hundred dollars by paying our auto insurance at once rather than monthly so I did a single transfer to pay that.

I have the dividends on all of our other Vanguard funds distributed to the short term bond fund so that helps replenish that fund.

Otherwise that fund gets money when I rebalance.

If I needed more money to withdraw and didn't need to rebalance then I would sell across the funds to maintain the asset allocation and would send the proceeds to the short term bond fund.

I determine how much taxes we will need to pay and then make sure that amount is withheld by Vanguard.

[Katsmeow]

Quote:

Originally Posted by kaneohe anyone know how that name came about? even google seems stumped.......

I would guess it is because Fido means faithful and Fidelity means faithful. With Fidelity starting with Fid it would be easy to call it Fido for short.

[dtbach]

I have IRA accounts with both Vanguard and Fidelity. I have set up a monthly deposit into my local credit union checking account from both of them and have Federal and State taxes deducted.

I have the deposit coming from my cash fund in each IRA. I just fund it by selling shares from the other funds within the account. So maybe once a quarter or even just once a year, I do my rebalancing by selling bonds/equities and put it into the cash account. It's like getting several pay checks each month.

[kongmen]

So when one sells say when re balancing to fund a cash account from which to pull monthly drafts from does one pay trading fees for each sell transaction?

In regards to this cash account this is the one that people on here tend to fund excessively I assume, like for multiple years? ( I couldn't figure out why some folks where holding so much cash). I guess its so folks won't have to sell in down markets.

[rescueme]

Quote:

Originally Posted by kongmen In regards to this cash account this is the one that people on here tend to fund excessively I assume, like for multiple years? ( I couldn't figure out why some folks where holding so much cash). I guess its so folks won't have to sell in down markets.

I guess it depends on the indivudial/couple and their level of acceptable risk.

Some folks on this forum keep a year (or less) in cash. We based our cash level upon the market flux we faced over 3+ decades of investing and have quite a bit in cash (tax-deferred MM accounts) due to our exposure to down markets over the years. But remember, our level of cash is much less than when we/I retired, over six years ago since I/we have income sources currently that were not available on day one of retirement. In addition, we also reduced the number of years of cash held after we became more "comfortable" of being retired and going through the cash management scenerio's you are just starting to think about.

One thing we've come to understand is that in retirement (using your investments as your primary income vehicle) "cash flow is everything".

There are those that are fortunate to retire on day one with SS, pensions, etc. that meet the great majority of their current income needs. In that case, I would think that their cash holdings would be little, as compared to our situation. The impact of selling in a down market (be it months or years) would be little.

Whereas our (financial) decision to retire was primarily based on our investment values at day one of retirement, we look at our MM accounts as insurance that our current income needs will be met, regardless of what the current market may be doing today, and in years to come.

Everybody's different and there is no one answer to the question (as most things in this forum under discussion).

BTW, I have no idea where FIDO came from. It's been in general use as long as I can remember. OTOH, why do people refer to Vanguard as "VG"? It's not two words. Maybe somebody will think by just using "V", you may confuse it with those lizard creatures on the TV series of the same name ...?

[teejayevans]

Quote:

Originally Posted by rescueme There are those that are fortunate to retire on day one with SS, pensions, etc. that meet the great majority of their current income needs. In that case, I would think that their cash holdings would be little, as compared to our situation. The impact of selling in a down market (be it months or years) would be little. Whereas our (financial) decision to retire was primarily based on our investment values at day one of retirement, we look at our MM accounts as insurance that our current income needs will be met, regardless of what the current market may be doing today, and in years to come. Everybody's different and there is no one answer to the question (as most things in this forum under discussion). BTW, I have no idea where FIDO came from. It's been in general use as long as I can remember. OTOH, why do people refer to Vanguard as "VG"? It's not two words. Maybe somebody will think by just using "V", you may confuse it with those lizard creatures on the TV series of the same name ...?

This is the internet, keystrokes are precious, not to be wasted, rescueme had 6 abbreviations, probably about average for that size post.

[rescueme]

Quote:

Originally Posted by teejayevans This is the internet, keystrokes are precious, not to be wasted, rescueme had 6 abbreviations, probably about average for that size post.

Forgot OTOH ...

[Katsmeow]

Quote:

Originally Posted by kongmen So when one sells say when re balancing to fund a cash account from which to pull monthly drafts from does one pay trading fees for each sell transaction? In regards to this cash account this is the one that people on here tend to fund excessively I assume, like for multiple years? ( I couldn't figure out why some folks where holding so much cash). I guess its so folks won't have to sell in down markets.

Whether you pay a fee or not depends on where you have your money and can depend on portfolio size. I don't pay any fees for selling Vanguard funds with my Vanguard account.

People vary on how much cash they keep.

In my money market account, I have currently enough for about 6 months of expenses. In my short term bond fund maybe a year (too lazy to go look up the exact amounts). Some people do hold a lot of cash so they don't have to sell in down markets. Other people don't. In short, if you hold a lot cash you don't have to sell in down markets. OTOH, I've read that holding a lot of cash is a drag on portfolio performance since that cash doesn't go grow in up markets.