Annual vs monthly IRA withdrawals

[Katoslake]

With an AA of 40 stock 55 bonds 5 cash, what are the pros vs cons of monthly vs annual withdrawal ? If this has been debated, please point me to the thread.
Thanks

 

[Katoslake]

Found similar threads below. Most comments from 2014. Very helpful. Any updates appreciated

 

[SecondCor521]

Pros of annual:

One transaction instead of 12
Could be done early in the year to ensure it gets done properly
Could be done late in the year to allow for a few more months of tax deferred growth
Simpler for heirs in the year of death

Pros of monthly:

More like a paycheck
More like a reverse DCA

...

I think your IRA custodian can probably do either on any schedule you choose if you want them to do it automatically for you. I think when I get there I'll probably set up some sort of automatic program.

 

[CRLLS]

I setup automatic monthly transfers from my IRA to my checking account and have
x% taxes withheld. It really is just as easy as a single, annual withdrawal. Maybe even simpler. Once RMD's set in, I may have to rethink that process. Or maybe I'll just calculate each year's RMD amount and adjust the monthly withdrawal accordingly in January. Reverse DCA is the main financial reason I do monthly.

ScecondCor521, can you explain the "Simpler for heirs in the year of death" part a bit. Is it simply that it eliminates the need for them to cancel the automatic withdrawals? Thanks.

 

[Ole Red 29]

only been retired two years, but so far I have been moving money as needed. I try to keep a few months expenses in my bank account, including any upcoming annual costs (property tax, quarterly tax, insurance premiums, etc.). So far, it's resulted in moving money about every 4 months.

 

[Souschef]

I have mine scheduled throughout the year:
Quarterly Estimated tax payments
Our 4 sons' birthdays-May through August
Granddaughter tuition
QCD's


Being an engineer, I have a spreadsheet to track all of it.
I am looking forward to the change in factors starting in 2021

 

[Z3Dreamer]

I went to get a loan. Had been taking money out of IRA as needed. Lender did not count that as income. Said that a history (a few months?) of monthly withdrawals would count. Example, 1 withdrawal of $20,000 equals no income. 6 monthly withdrawals of $1,000 per month equals annual income of $12,000.

 

[SecondCor521]

ScecondCor521, can you explain the "Simpler for heirs in the year of death" part a bit. Is it simply that it eliminates the need for them to cancel the automatic withdrawals? Thanks.

It's a little more than that.

My understanding of the rules is that if a person taking RMDs pass away, the full RMD in the year of death must still be taken, either by the decedent or by the beneficiaries in any combination.

Imagine a scenario where a person is taking monthly RMDs and dies in September and has a few adult children who are the beneficiaries. The children then need to coordinate a bunch of things: (a) shutting off the monthly RMDs (or not), (b) taking the last few months RMD either from the decedent's IRA (how do you do this if they're deceased and you may not even have letters testamentary to authorize it?) or their beneficiary IRAs, (c) if they take it from their beneficiary IRAs, then they need to (i) set those up correctly, (ii) divide and transfer the assets over, (iii) decide on who takes how much of the distribution, (iv) take the distribution(s). All of this and more needs to be coordinated prior to the end of the calendar year or a 50% excise tax on the undistributed amounts will be due. All while grieving the loss of a parent and taking care of the rest of the estate.

If the parent just took the annual RMD in January, then there is no question, no discussion, no hurry (the next year's RMDs would be completely the beneficiary's thing and could be done as late as December of the year following the year of death), no coordination, no figuring out how to do an RMD from within an estate.

I am looking forward to the change in factors starting in 2021

Double check, but I think the IRS said the new factors go into effect 1/1/2022.

 

[foxfirev5]

Three withdrawals per year for me. One in January for major bills like property taxes, insurance and vacation trips. The second in December to cover federal and state witholding. And the third in December to fill my tax bracket and Roth conversions.

 

[OldShooter]

We just withdraw when we need money, probably 4-6x per year. Basically all of our money is in tIRAs, so in December we withdraw the safe harbor amounts for the feds and state, specifying 100% withholding.

IMO there are two aspects to this question. One is personal financial logistics. Some people like to have a "paycheck," others like us are more ad hoc. The second is that it is a market timing question. Especially to the extent that you are liquidating equities, being pessimistic about the year might cause you to take the year's needs in January. Optimistic? Sell as late as possible in the year.

People are different; strategies are thus necessarily different too.

 

[CRLLS]

We just withdraw when we need money, probably 4-6x per year. Basically all of our money is in tIRAs, so in December we withdraw the safe harbor amounts for the feds and state, specifying 100% withholding.

IMO there are two aspects to this question. One is personal financial logistics. Some people like to have a "paycheck," others like us are more ad hoc. The second is that it is a market timing question. Especially to the extent that you are liquidating equities, being pessimistic about the year might cause you to take the year's needs in January. Optimistic? Sell as late as possible in the year.

People are different; strategies are thus necessarily different too.

There is another aspect to market timing where you might be optimistic about the year's gains, but want to do a Roth conversion early in the year to burn the IRA down in order to reduce future RMD amounts. By converting early, given a finite dollar amount, you effectively reduce the IRA more than if that same amount was converted late in the year. One must to RMD's before any other withdrawal or conversions. So many situations and choices. .

 

[OldShooter]

There is another aspect to market timing where you might be optimistic about the year's gains, but want to do a Roth conversion early in the year to burn the IRA down in order to reduce future RMD amounts. By converting early, given a finite dollar amount, you effectively reduce the IRA more than if that same amount was converted late in the year. One must to RMD's before any other withdrawal or conversions. So many situations and choices. .

I dunno. That feels a little like you may be letting the tax tail wag the investment dog, but I just don't have the patience to work through that kind of stuff to find out for sure. It would depend on market growth this year and in future years, tax rate on this year's income, tax rates on future years' RMD income, snips, snails and puppy-dogs' tails. Too much for me.

 

[CRLLS]

I dunno. That feels a little like you may be letting the tax tail wag the investment dog, but I just don't have the patience to work through that kind of stuff to find out for sure. It would depend on market growth this year and in future years, tax rate on this year's income, tax rates on future years' RMD income, snips, snails and puppy-dogs' tails. Too much for me.

This is my goal. I expect that, if left alone, I will never be in a lower tax bracket that I am now. RMD's and SS will see to that. That is not even considering any future tax bracket changes, just average market gains over time. I also expect tax rates will not be lower than they are today. I live in a state where all retirement income is not taxed. I don't expect that will last much longer either.

Whether that is allowing the tax to wag the investment dog or not, I don't know. According to all the various calculators, either way we won't be wanting for money beyond our expenses. If I can help my beneficiaries out by converting a higher amount of taxable withdrawals, I'm all for it. I suppose I could put less money in equities and more money in bonds. That would also throttle the growth of the IRAs. But that move could be considered another tax avoidance investment decision.

I don't think I am alone in trying to reduce the IRA balance quicker and subsequent RMD's. Some advocate that equities be held in the Roth and bonds held in the IRA's? Isn't that also the tax wagging the investment dog?

 

[pb4uski]

With an AA of 40 stock 55 bonds 5 cash, what are the pros vs cons of monthly vs annual withdrawal ? If this has been debated, please point me to the thread.
Thanks

Go to Portfolio Visualizer. Enter 45% VTSMX. 55% VBMFX and 5% CASHX. $1m portfolio with $3,996 annual withdrawal and click Analyze Portfolio. Final balance = $3.505 million.

Change withdrawals to $3333 monthly... final balance $3.391 million.

Sort of what one would expect in a rising market but I think at the end of the day the real question is what is your preference.

 

[CRLLS]

Go to Portfolio Visualizer. Enter 45% VTSMX. 55% VBMFX and 5% CASHX. $1m portfolio with $3,996 annual withdrawal and click Analyze Portfolio. Final balance = $3.505 million.

Change withdrawals to $3333 monthly... final balance $3.391 million.

Sort of what one would expect in a rising market but I think at the end of the day the real question is what is your preference.

I think you mistyped and meant to say "$39,996 annual withdrawal". As expected in a rising market, which the markets have historically done over the long run, the longer money is in the market the better balance at the end.

 

[audreyh1]

Go to Portfolio Visualizer. Enter 45% VTSMX. 55% VBMFX and 5% CASHX. $1m portfolio with $3,996 annual withdrawal and click Analyze Portfolio. Final balance = $3.505 million.

Change withdrawals to $3333 monthly... final balance $3.391 million.

Sort of what one would expect in a rising market but I think at the end of the day the real question is what is your preference.

Is the annual withdrawal near the end of the year?

 

[pb4uski]

I think you mistyped and meant to say "$39,996 annual withdrawal". As expected in a rising market, which the markets have historically done over the long run, the longer money is in the market the better balance at the end.

Yes... typo... should have been $39,996.

 

[pb4uski]

Is the annual withdrawal near the end of the year?

I believe so but have no way to tell.

 

[audreyh1]

I believe so but have no way to tell.

Because if the annual withdrawal were at the beginning of the year, the opposite would be true.

 

[Katoslake]

Go to Portfolio Visualizer. Enter 45% VTSMX. 55% VBMFX and 5% CASHX. $1m portfolio with $3,996 annual withdrawal and click Analyze Portfolio. Final balance = $3.505 million.

Change withdrawals to $3333 monthly... final balance $3.391 million.

Sort of what one would expect in a rising market but I think at the end of the day the real question is what is your preference.

Thanks. I've been playing with the numbers and it seems like you can take a little risk off the table (if you consider Stocks to be higher risk) and still reach a similar goal. Just wondering if Bonds-fixed will uphold their end of the bargain going forward vs historically ?

Appreciate all the comments !

 

[marko]

FWIW: We take our withdrawals from our IRA when the checking account gets low. Maybe $30-$50K at a time 3 or 4 times a year; as needed

This became a problem when we considered taking a small mortgage for our new house. (we decided to pay cash for the balance)

Seems that without a "regular, scheduled and formal" withdrawal program lenders don't care if you have several million NW, zero debt and an 825 credit score. Apparently not having a 'regular' income spooks them for some reason.

Spoke to my advisor at T Rowe and he said he runs into this all the time.

Other than that, I don't see any different on how one withdraws.