RMD? What to do with it if you don't need $

[audreyh1]

Yes, I believe that's the case. I didn't want to try to enumerate what specific benefits might accrue because I am just not that much of a tax maven. But maybe the adjustments to medicare premiums would be affected too?

Yes, because any QCD never shows up as part of your MAGI.

 

[gerntz]

For some reason, quite a few folks get the idea in their heads that RMD money is somehow gone from their retirement nest egg after it is withdrawn. For some reason it takes extra imagination to realize that only the taxes owed are truly “gone” and the remainder can be reinvested. Maybe some folks have only IRA type funds for their retirement so it simply hasn’t occurred to them that after-tax accounts can fund retirement as well.

You make a good point.

That people have to pay taxes from their assets due to RMD vs. having withholding as when they work seems to get them more upset than with withholding taxes as they go thru the year. I think it gives insight into how a lot of working folks would react to taxes if there wasn't withholding & had to pay them from their assets at the end of the year.

 

[eytonxav]

This is my first year of RMDs. It does make me feel richer, but now more decisions are needed on how to reinvest, gift, and/or spend. Additional tax bite is compounded by DW's pension starting in July and then she will start drawing SS next year. Can't complain though, as overall it's a good problem to have and kind of feels like I'm returning to some of my working years in terms of disposable income.

 

[audreyh1]

This is my first year of RMDs. It does make me feel richer, but now more decisions are needed on how to reinvest, gift, and/or spend. Additional tax bite is compounded by DW's pension starting in July and then she will start drawing SS next year. Can't complain though, as overall it's a good problem to have and kind of feels like I'm returning to some of my working years in terms of disposable income.

Is your annual income now higher due to the RMDs?

You aren’t just shifting from taking all income from taxable to part from taxable and rest from the RMD?

 

[street]

For some reason, quite a few folks get the idea in their heads that RMD money is somehow gone from their retirement nest egg after it is withdrawn. For some reason it takes extra imagination to realize that only the taxes owed are truly “gone” and the remainder can be reinvested. Maybe some folks have only IRA type funds for their retirement so it simply hasn’t occurred to them that after-tax accounts can fund retirement as well.

True! I had a thread a while back that asked the question when you start taking RMD would your portfolio wealth go down after RMD. The responses to that question was that data shows if reinvested your portfolio would increase even when the taxes were taking out.

We have to remember it is done each year so markets change and taxes are done over years not all at once.

 

[eytonxav]

Is your annual income now higher due to the RMDs?

You aren’t just shifting from taking all income from taxable to part from taxable and rest from the RMD?

The majority of my savings are before tax, so the RMDs are now requiring me to take more than DW and I need.

 

[Dtail]

The majority of my savings are before tax, so the RMDs are now requiring me to take more than DW and I need.

Perhaps you can use the extra monies after tax to make your portfolio more tax efficient if needed with the shift to taxable from TIRA related to equity/bond placement.

 

[audreyh1]

The majority of my savings are before tax, so the RMDs are now requiring me to take more than DW and I need.

But doesn’t that just mean you don’t need to draw on your taxable accounts anymore? Or draw much less?

 

[eytonxav]

Perhaps you can use the extra monies after tax to make your portfolio more tax efficient if needed with the shift to taxable from TIRA related to equity/bond placement.

That would be the plan in terms of reinvesting, continue to use tax efficient funds/etfs.

But doesn’t that just mean you don’t need to draw on your taxable accounts anymore? Or draw much less?

Right, I have no need to touch my taxable accounts.

 

[gerntz]

The majority of my savings are before tax, so the RMDs are now requiring me to take more than DW and I need.

That's a good thing. Congrats that you have more than you need.

 

[marko]

No RMD for another 3 years but our current IRA WD is higher than our RMD will be.

 

[Rustic23]

I have been taking RMD for 6 years. I move the money from a Money Market account in my IRA to the same on the taxable side. Turbo Tax tells me I pay 17% total tax for my income. I convert the RMD to a withdrawal rate. ie if my withdrawal is $22,500, and I pay 17% of that in tax $3,825, the other returned to the Money Market, that is a .00765 SWR.

This makes sense to me. If I were tapping the taxed money market, I think it would make it harder to determine an actual SWR. So far I have not had to tap it.

 

[NW-Bound]

But if you don't need it, then you can simply repurchase the same low stocks in a taxable account. Then the price of the market does not matter.

If however you are going spend it, then yes, it's nicer when the market is UP.

You do not even have to do that. I simply transfer the number of shares required for RMD from my IRA to my taxable account. I have been doing that for years.

I can transfer shares from my IRA at Schwab to my taxable account, and it's done in real time as soon as I hit "confirm". If the transfer is done during a trading session, the most recent trading price of the stock or ETF shares right at that point is used to determine the amount reported to the IRS. The withheld tax is also computed the same way.

Merrill Edge does not have this capability. Withdrawal is done in cash only, requiring shares to be sold, then repurchased in the taxable account.

So, this in-kind withdrawal of shares is not universally available at all brokerages.

 

[Doc0]

Roth convert the IRA over a scheduled # of years, say 5. You can convert all of the IRA or convert 2/3 and let the other 1/3 go to RMD. Put the remaining IRA in bonds. It will add a little to taxes but not much and the Roth grows tax free. In your old age you'll have a nest egg to cover catastrophic expenses like a bad medical diagnosis over and above your normal WR. In other words the Roth acts as self insurance.

 

[Corporateburnout]

Roth convert the IRA over a scheduled # of years, say 5. You can convert all of the IRA or convert 2/3 and let the other 1/3 go to RMD. Put the remaining IRA in bonds. It will add a little to taxes but not much and the Roth grows tax free. In your old age you'll have a nest egg to cover catastrophic expenses like a bad medical diagnosis over and above your normal WR. In other words the Roth acts as self insurance.

+1.

When RMD hits we would have converted 50%+ of our IRAs to Roth and we may continue to do so on a smaller scale after RMD.

 

[dtbach]

As others have said, take it (you really have to) and reinvest in the same stuff you took it out of. Then you can leave it there until you pass away.

 

[rprun54]

You don't have to pay the taxes if you donate the RMD to charity via QCD.

I would rather pay the taxes than not having it.

 

[2177V]

The reason for RMD: The government wants to tax you while you are still living. If there is no RMS, the IRA will get inherited after you kick the bucket....but there is still no taxes for the government unless the spouse or heir cashes out. The RMD maintains a certain cash flow back to the government.

I would collect the RMD, pay the taxes and enjoy the money. You earned it.....or invest the money in a taxable mutual fund where there are no RMD.

 

[Souschef]

The reason for RMD: The government wants to tax you while you are still living. If there is no RMS, the IRA will get inherited after you kick the bucket....but there is still no taxes for the government unless the spouse or heir cashes out. The RMD maintains a certain cash flow back to the government.

I would collect the RMD, pay the taxes and enjoy the money. You earned it.....or invest the money in a taxable mutual fund where there are no RMD.

However, if it is an inherited IRA, there is an RMD calculated on the age of the inheritor, unless it is a spouse. My IRA has DW as the beneficiary, but if she passes before I do, the contingent beneficiaries are her 2 sons. When they inherit the IRA, they would have to take RMD's based on the IRS table.


The whole misunderstanding of RMD's is some people think you have to give all the RMD money to the IRS. Not true, you just have to pay the tax on the RMD. Foe example, if your RMD is $10,000, and you are in the 17% bracket, the tax is only $1700., leaving you with $8300 to keep and do with whatever you want. Spend, it, reinvest it, give it to you kids, etc.

 

[Jeb-NY]

One of the mistakes I made early in my early retirement was playing the game of trying to minimize my taxes as close to zero as possible. It then occurred to me that I was spending my taxable funds and I was increasing my RMD and taxes later. So I started pulling all my retirement expenses from my IRA and pulled extra out for ROTH conversion up to the tax rate I was willing to pay.

My Roth, from when I was working and conversion, is about a 1/3 of my total assets, which I figure would be our long term care funds if we need it. Early on I decided I didn't want to much in ROTH since I don't trust the government not to change the rules and end up double taxing the ROTH. If they decided to replace part or all of the income tax with a federal sales tax the ROTH would be effectively taxed when used.

I am using QCD for the charities we already support and the rest is just income to do with as we would income from any source, spend/invest. I do use the RMDs to rebalance my AA as much as possible on a month to month bases and then do additional rebalancing when I get to far off my AA.

 

[jimbee]

If you don't need it, give it away or reinvest per your investment policy statement. I don't know why this is complicated.

 

[free2020]

One of the mistakes I made early in my early retirement was playing the game of trying to minimize my taxes as close to zero as possible. It then occurred to me that I was spending my taxable funds and I was increasing my RMD and taxes later. So I started pulling all my retirement expenses from my IRA and pulled extra out for ROTH conversion up to the tax rate I was willing to pay.

My Roth, from when I was working and conversion, is about a 1/3 of my total assets, which I figure would be our long term care funds if we need it. Early on I decided I didn't want to much in ROTH since I don't trust the government not to change the rules and end up double taxing the ROTH. If they decided to replace part or all of the income tax with a federal sales tax the ROTH would be effectively taxed when used.

I am using QCD for the charities we already support and the rest is just income to do with as we would income from any source, spend/invest. I do use the RMDs to rebalance my AA as much as possible on a month to month bases and then do additional rebalancing when I get to far off my AA.

Great post! You are spot on about trying to save on taxes early while paying more later. Perhaps much more, depending on your assets and tax rates in the future. Just curious, at what age did you come to this realization? I did as well when I was about 50. And I too have been stuffing the Roth account and have about 25% of assets currently in Roth. I have made it my personal goal to tell my kids' and their generation to get this right in their 20's. I don't know if they can imagine their fortunes when they get to retirement age but I sure can. In a sense, I'm trying to dream for them. The only thing that would keep them from realizing this is not understand the power of (tax free) compounding.

 

[gerntz]

Reading this thread, I get the idea that some people think that all of the assets in their IRA are theirs.

 

[Jeb-NY]

Great post! You are spot on about trying to save on taxes early while paying more later. Perhaps much more, depending on your assets and tax rates in the future. Just curious, at what age did you come to this realization? I did as well when I was about 50. And I too have been stuffing the Roth account and have about 25% of assets currently in Roth. I have made it my personal goal to tell my kids' and their generation to get this right in their 20's. I don't know if they can imagine their fortunes when they get to retirement age but I sure can. In a sense, I'm trying to dream for them. The only thing that would keep them from realizing this is not understand the power of (tax free) compounding.

I learned early about living below my means and saving/investing, probably mid 20s. This allowed me to retire at 57, I was actually ready at 55 but was enjoying work at that time so delayed a couple of years. Unfortunately I didn't change my ideas on funding my retirement for a few years, so maybe 60. I waited till I was 70 to draw SS so I still had some time to balance pre/post tax/roth accounts better.

 

[meleana]

I take the RMD from my Beneficiary IRA every year and invest it in my brokerage account or CD's.