If this annual transfer is an IRA withdrawal, how will you handle taxes?Each January I will transfer the coming year's spending money from my Vanguard MM to my bank account during the rebalancing process.
If this annual transfer is an IRA withdrawal, how will you handle taxes?
REW is that withhold an IRA requirement or is it optional? Fixed percent?EIDT to add: The bi-weekly Vanguard transfers also include income tax withholding. Much easier for me to manage this way rather than having to fool with (and remember) quarterly payments.
It's optional. From the Vanguard website:REW is that withhold an IRA requirement or is it optional? Fixed percent?
You can select any withholding percentage of 10% or more."You can elect either not to have any federal income taxes withheld from your IRA distributions, or to have a minimum of 10% withheld."
It's optional. From the Vanguard website:"You can elect either not to have any federal income taxes withheld from your IRA distributions, or to have a minimum of 10% withheld."
Yep. But I do have to keep my air conditioner repairman and pest control service on retainer...Then don't you still have to make estimated quarterly payments for your state taxes? OH - - that's right. You live in TEXAS. Guess that partly makes up for the rest of it.
Then don't you still have to make estimated quarterly payments for your state taxes? OH - - that's right. You live in TEXAS. Guess that partly makes up for the rest of it.
You should consider that you might start feeling real nervous if your retirement portfolio is dropping rapidly and you are only getting one month's worth of money out at a time. Also, do you change investments (i.e. rebalance the portfolio) after taking a withdrawal? That's something better done once a year rather than monthly, especially since there are probably tax consequences (either due to selling stuff in the portfolio or due to withdrawal from an IRA), and it's easier to deal with tax consequences on a yearly basis.
Many of us take out a year's worth of needs (plus any taxes due) in Jan, rebalance the remaining portfolio, and put that money in a money market account. You can then have monthly amounts sent to your bank account or whatever.
Audrey
It ultimately doesn't really matter whether that MM fund holding a year's worth of expenses (including anticipation of taxes due) is inside the IRA or outside of the IRA. The point is to get what you need out of investments that change value during the year (i.e. keep it in cash). The OP spoke of "monthly is best to dollar cost average out" which implies she was considering selling equities/bonds on a monthly basis. I was pointing out why you might not want to do it that way.Good point on re-balancing vs withdrawal. I was speaking only to withdrawal mechanics. Portfolio asset allocation and re-balancing is done separately. We have a bucket of "safe" investments in IRA as mentioned above from which we can easily keep IRA MM above withdrawal amount (the MM is what is automatically transferring to taxable). Since we route all dividends in the IRA to IRA MM, quarterly distributions come close to being what we need for our quarterly transfers.
I am assuming monthly is best to dollar cost average out,
IOW, there's no explicit withdrawal of money.