It's not immediately obvious to me

[RASAP]

Currently, DW and I live off of our Social Security, dividends from our taxable accounts, interest, and sale of funds from our taxable accounts. Soon I will start taking RMDs which, along with our Social Security will exceed our annual expenses. My question is simple (I think): When I start taking RMDs, should I then start reinvesting the dividends (~14k) rather than collect them?

 

[pb4uski]

You could... or let the excess accumulate over the year and the invest it when you rebalance.

 

[OldShooter]

... should I then start reinvesting the dividends (~14k) rather than collect them?

YMMV but I would not, because each tiny purchased lot will have a different cost basis. So when you sell you will almost certainly be forced to use average cost as your basis. Maybe you don't care or maybe you expect these assets to get a basis step-up in your estate, or maybe you have some other reason. Hence the YMMV.

For us, I would park the dividend $ with other money until I was ready to make economically significant fund purchases or I'd just spend it for day-to-day expenses. That's what we do with the tiny interest payments we get on our TIPS, where reinvestment isn't an option. We do reinvest mutual fund dividends but all of that happens inside the IRAs where basis doesn't matter.

 

[pb4uski]

YMMV but I would not, because each tiny purchased lot will have a different cost basis. So when you sell you will almost certainly be forced to use average cost as your basis. ....

Why would they "almost certainly be forced to use average cost as your basis"? Does it make sense. Brokers keep good track of purchase lot basis today.

I agree that having lots of little purchase lots is a pain in the neck but it's not a big deal.

 

[OldShooter]

... I agree that having lots of little purchase lots is a pain in the neck but it's not a big deal.

Agreed, it's entirely feasible and the data is there. Whether dealing with it is a big deal is probably in the eye of the beholder. As a very detailed guy I'm not surprised that you have your view. As a somewhat lazier individual, I would be unlikely to fool with it and would default to average cost. So, again, the OP's MMV.

 

[RobbieB]

I just like to see that cash build up until I find a use for it. And I always do -

 

[obsessed]

I would spend the dividends (I assume they are spread throughout the year) and reinvest the RMD back into whatever type of investment(s) the dollars were within your IRA or equivalent. That way you only have to deal with it once a year.

 

[38Chevy454]

Seems like a great "blow that dough" opportunity. Buy something you like but don't absolutely need. Go on a nicer more luxurious vacation. Or gift it to your kids, grandkids, or charity. Lots of ways to spend some extra, when you have already paid the tax liability on it.

 

[audreyh1]

It really depends on what your long term plans are for those taxable investments. Are you saving them for someone else? Or to use later in life?

If you don’t know, now would be a good time to think about it. That then drives your investing decisions.

 

[teej1985]

if you donate to charity, use part of your RMD's as QCD's instead of sending your own checks.

 

[pb4uski]

Agreed, it's entirely feasible and the data is there. Whether dealing with it is a big deal is probably in the eye of the beholder. As a very detailed guy I'm not surprised that you have your view. As a somewhat lazier individual, I would be unlikely to fool with it and would default to average cost. So, again, the OP's MMV.

There really is not much to fool with.... when you sell you get a list of all your purchase lots and what their value, basis and unrealized gains are and you check off the lots you wish to sell and how many shares of each lot... and at the bottom they provide a total of the total estimated proceeds and total estimated gain or loss. Easy peasy.... even a [-]caveman[/-] OldShooter can do it.

 

[RASAP]

It really depends on what your long term plans are for those taxable investments. Are you saving them for someone else? Or to use later in life?

If you don’t know, now would be a good time to think about it. That then drives your investing decisions.

My spreadsheet analysis indicates that our RMDs and Social Security will cover our annual spending (including vacations and taxes) thus no drawdown of the taxable accounts required. We are not intentionally saving anything for our heirs but it's looking like there will be something left none the less.

 

[TheWizard]

I have excess retirement income most months, so I let quarterly dividends accumulate in my taxable settlement account until I have a few thousand of other money to combine with it.

Hence, larger lot size than if I had set taxable dividends to reinvest...