Does RMD decrease your portfolio

[street]

Quote:

Originally Posted by audreyh1 Our RMDs will cause a drop in net worth due to taxes paid.

I see that also happening but as time goes on you could be worth more. It all depends on what a person does with those RMD moneys. It would be different if you had to take everything in one year then it be a different ball game. IMO

[gerntz]

Quote:

Originally Posted by audreyh1 Our RMDs will cause a drop in net worth due to taxes paid.

No, they won't. The pre-tax value of your RMD's was always less than the IRA listed value if you pay income taxes. You just didn't factor that tax discount into your NW before you took RMD's. RMD taxes are a fact of life, like death. Never understand why folks don't discount IRA's for taxes.

[gerntz]

Quote:

Originally Posted by Souschef DW's birthday was also in December, but we took the first RMD that year. Otherwise we would have to take 2X in one year. Remember, you do NOT have to cah out your holdings. You can just transfer the RMD amount to a taxable account. That can be done over the phone.

If you have to pay taxes on RMD's, there's cash out somewhere or another.

[gerntz]

BTW, RMD's cost you less in a state free of income taxes.

[Sunset]

Quote:

Originally Posted by gerntz BTW, RMD's cost you less in a state free of income taxes.

Which is one reason not to discount them, as I think/expect to move to a tax free State at some point, possibly after starting RMD's or before.

So it's a lot simpler to not discount them, as I have no idea what the tax rates will be then, so any number I use will be wrong.

[bada bing]

Quote:

Originally Posted by Souschef DW's birthday was also in December, but we took the first RMD that year. Otherwise we would have to take 2X in one year. Remember, you do NOT have to cah out your holdings. You can just transfer the RMD amount to a taxable account. That can be done over the phone.

You took a distribution for the first year that was not required. The rules are:
you must take your first RMD for the year you turn 70 1/2 .
If your birthday is in December, you will turn 70 1/2 in May the following year. For the
first year RMD, you can delay until April of the following year, but will still have a required
RMD for that year, due by the end of the year.

[kaneohe]

Quote:

Originally Posted by bada bing You took a distribution for the first year that was not required. The rules are: you must take your first RMD for the year you turn 70 1/2 . If your birthday is in December, you will turn 70 1/2 in May the following year. For the first year RMD, you can delay until April of the following year, but will still have a required RMD for that year, due by the end of the year.

Perhaps? they were talking about the yr they turned71 in Dec?

[Katsmeow]

I don't devalue tax deferred assets by the amount that will be due for taxes. However, in my projections I include expected taxes in my spending.

[Independent]

Why not both?

I produce a net worth report once a quarter. It has a column for before tax value and a second column for after tax value. If the actual marginal tax rate on my RMD equals the rate assumed in my second column ...

... the total of the first column will go down, but the total of the second column will stay the same.

[audreyh1]

Quote:

Originally Posted by gerntz No, they won't. The pre-tax value of your RMD's was always less than the IRA listed value if you pay income taxes. You just didn't factor that tax discount into your NW before you took RMD's. RMD taxes are a fact of life, like death. Never understand why folks don't discount IRA's for taxes.

Because I don’t know in advance how much tax I’ll owe, or how much I may gift in QCD either.

[audreyh1]

Quote:

Originally Posted by Katsmeow I don't devalue tax deferred assets by the amount that will be due for taxes. However, in my projections I include expected taxes in my spending.

Exactly!

Same with my taxable retirement portfolio full of unrealized gains that may or may not be passed on to an heir while I minimize realized gains during my lifetime.

[sengsational]

Quote:

Originally Posted by Katsmeow I don't devalue tax deferred assets by the amount that will be due for taxes. However, in my projections I include expected taxes in my spending.

You plan for it on the expense side, which is one option. If it's predictable and steady, that works well. I've found, by looking at i-orp, that by the time RMDs hit, tax expense is more steady. Before then, though, there can be wild swings, especially if there's ACA plays going on.

[jkern]

My NW number is just for fun. I don't use it for any financial calculations like expenses, budgets, income, and withdrawal rates. Therefore, I don't count taxes or any other liquidation costs in calculating NW.

[gerntz]

Quote:

Originally Posted by Sunset Which is one reason not to discount them, as I think/expect to move to a tax free State at some point, possibly after starting RMD's or before. So it's a lot simpler to not discount them, as I have no idea what the tax rates will be then, so any number I use will be wrong.

OK, then just discount them for Fed taxes to be paid. If that's zero, then your view is correct.

[gerntz]

Quote:

Originally Posted by Katsmeow I don't devalue tax deferred assets by the amount that will be due for taxes. However, in my projections I include expected taxes in my spending.

Fine. But it's unavoidable required spending that you can't take out of budget like discretionary spending. Net, you'll never have that tax money in your hands. It's fictitious. So the number you're looking at is inflated vs. reality.

[gerntz]

Quote:

Originally Posted by Independent Why not both? I produce a net worth report once a quarter. It has a column for before tax value and a second column for after tax value. If the actual marginal tax rate on my RMD equals the rate assumed in my second column ... ... the total of the first column will go down, but the total of the second column will stay the same.

+1.

[gerntz]

Quote:

Originally Posted by audreyh1 Exactly! Same with my taxable retirement portfolio full of unrealized gains that may or may not be passed on to an heir while I minimize realized gains during my lifetime.

I don't discount taxable cap gains either for the same reason. But taxes on RMD's less QCD's certainly will be realized as long as you live.

[Katsmeow]

Quote:

Originally Posted by gerntz Fine. But it's unavoidable required spending that you can't take out of budget like discretionary spending. Net, you'll never have that tax money in your hands. It's fictitious. So the number you're looking at is inflated vs. reality.

I don't agree. Depending on income, no taxes may be due at all. DH has to take an RMD this year. I do as well on an inherited IRA. Due to various reasons, we will not be pulling a lot out of our IRAs this year. At this point I expect that our income tax for this year will be zero to a few hundred dollars as none of our SS will be taxable. If our income was solely RMDs with no other withdrawals (most years it will be more than that), we would not owe any income taxes.

[CardsFan]

Quote:

Originally Posted by gerntz Fine. But it's unavoidable required spending that you can't take out of budget like discretionary spending. Net, you'll never have that tax money in your hands. It's fictitious. So the number you're looking at is inflated vs. reality.

Lets face it. Net worth is a worthless number. It is just a gauge to use to see if your investments are going up, or going down.

I don't recall Barron's or Forbes ever discounting the net worth of Bill Gates or Mark Zuckerberg when they publish their lists. In reality, if either tried to quickly liquidate, the stock would plummet, and taxes would be the least of the issue.

[kaneohe]

Whenever I see a discussion like this I always think of the song DGD and classmates sang at their pre-K graduation: different ways of looking at things, each w/ its merits, and the likelihood of changing others minds not too likely.

The world is a rainbow
With many kinds of people;
It takes all kinds of people
To make the world go round.

Now you be you
And I'll be me.
That's the way we were meant to be.
But the world is a mixing cup.
Just look what happens when you stir it up!