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taking inherited IRA RMD ... monthly? yearly?
Old 01-20-2020, 01:13 PM   #1
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taking inherited IRA RMD ... monthly? yearly?

I have a couple of inherited IRAs which which together make up about 40% of my after-tax monthly "income". ( I am 62.5 yo, and have had these iIRAs for four years, so I can stretch the distributions over my lifetime.) The other 60% comes from the dividends earned on my taxable accounts.

In the past couple of years, I have taken the RMDs in 12 monthly distributions, deposited to my every-day checking account less some income tax withholding.

Now I am rethinking that, especially with the current market (the length of the current run is a bit concerning). I am considering instead taking the RMD now, as a single payment rather than as monthly payments as being .... less "risky" approach? I'm flailing here ...

Thoughts? Am I overthinking this? Clearly if the market tanks I will have to sell a whole lot more shares to meet my RMDs, so by taking the RMD now and selling fewer shares am I being "safe?"

Thanks!
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Old 01-20-2020, 01:18 PM   #2
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It depends on how reliant you are on the 40% the RMDs provide. If you don't have buffer in your budget, then I, personally, would take the RMD now (bird in the hand). You can move it to a brokerage account money market account, then have the monthly transfers made to your checking account.

I advised my father, in December 2019, to sell the equivalent of his 2020 RMD, and leave it in the IRA until January, to ensure that the gains of 2019 are not lost, as he would be in a world of hurt if the markets dropped significantly prior to him taking the RMD.
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Old 01-20-2020, 01:25 PM   #3
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The investment choice and the distribution are really two different things. You could sell a year of what I assume is an equity fund in the IRA, and hold it there in a money market or whatever they offer for a cash sweep, and still do your monthly transfers. Or you could transfer the whole year out of the IRA if you can make a little better interest in another account.

I think it makes total sense to have a year's worth of withdrawals in cash one way or another.
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Old 01-20-2020, 01:34 PM   #4
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I have my RMD's scheduled as below. I use my RMD to pay next year's estimated taxes plus whatever QCD's I want



JAN-4TH QTR EST
APR-1ST QTR EST+ ANY TAXES
JUN-2ND QTR EST
SEPT-3RD QTR EST
YMMV
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Old 01-20-2020, 01:34 PM   #5
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After 2018 when I took my RMD after market went down, I decided when the account, due to market conditions, was up over the amount of my RMD, that I would take my RMD at that point instead waiting till the end of the year. At some point in the year nearly always the market is up at least that amount.

Market timing is iffy, and you can take even your full inherited IRA at any time, but to vary the time of year is a very mild market timing, why not now?
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Old 01-20-2020, 01:36 PM   #6
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In the long run I do not believe that it makes any difference how you take it out.

Isn't having options wonderful?

If you do not need the monthly income to live on and don't mind risking the fact that the market may dip when you actually take it out prior to next January, why not give it a shot and take all of the RMD in December like many folks here do?
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Old 01-20-2020, 01:42 PM   #7
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Quote:
Originally Posted by Souschef View Post
I have my RMD's scheduled as below. I use my RMD to pay next year's estimated taxes plus whatever QCD's I want



JAN-4TH QTR EST
APR-1ST QTR EST+ ANY TAXES
JUN-2ND QTR EST
SEPT-3RD QTR EST
YMMV
Why not wait until year end, if the reason is mainly estimated taxes and thereby only dealing with it once a year?
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Old 01-20-2020, 01:42 PM   #8
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Since RMDs are required by year end, take them after an upswing, and thereby lock in the gains of that run, and with no multi-year upside risk. January is often a good month for stocks, so if that is the bulk on your IRA investment, January can be a good month for RMDs.
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Old 01-20-2020, 01:53 PM   #9
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You can outlive an inherited IRA. The RMD is an initial divisor determined by your expected lifetime, but instead of a new divisor each year you just subtract another 1 from the original divisor each year. So it basically runs out at the end of your original expected lifetime, regardless of the fact you may still be living.

My DM's inherited IRA has a divisor of 2.7 for 2020, 1.7 for 2021, and 0.7 for 2022. So it's empty as of 2022. So be careful with your spending.

I use a 75/25 stock/bond mix in DM's (and my own) IRA. If the market falls significantly before withdrawing RMD's I usually sell some bond fund shares for the RMD. If the market is OK, I restore the AA or sell 75/25 if it's already balanced. DM takes her RMD at the end of the year, so something like bonds or cash are very useful if the IRA loses value over the year. I'll have to figure out how the last year's 0.7 divisor works out. Seems like that might require all cash at the start of the year just to ensure we can withdraw the RMD amount. I assume there is some special rule that says as long as the IRA is empty sometime that year there's no penalty, but I haven't researched that yet.

Other than those considerations, whatever is easiest. I've been using a yearly cash-raise to fund an online bank account from which I take monthly withdrawals into our checking account. Once our taxable accounts are empty I might set up some default withdrawal plan completely within the brokerage since they seem pretty flexible. At that point, the less I have to do to maintain it the better.
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Old 01-20-2020, 01:54 PM   #10
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We have one inherited IRA that is around $80K, so it probably doesn't matter in the grand scheme of our retirement's net worth when we take its RMD. That said, I have a modest pension that I have taxes withheld from.

The main reason we wait until early December to take the inherited IRA's RMD is to allow us another way to have taxes withheld in the event our planned withholding from my pension falls short. Both of us are under 70.5 (now 72), so we have no other RMDs to deal with.

I am also concerned in a few years when I will start my SS. Any RMD from the inherited IRA is likely to land in the 22% tax bracket (assuming no future change - no guarantees of that). I actually withdrew more than the RMD in early December 2019 to pin us right up to the top of the 12% tax bracket. I couldn't accurately do that earlier in the year.

Once my DW's RMD from her IRA kicks in four years from now, any inherited IRA distribution will be solidly in the 22% tax bracket. Because of that, I am seriously considering draining as much of the inherited IRA as possible before DW's RMD starts, assuming we can stay in the 12% tax bracket.
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Old 01-20-2020, 01:54 PM   #11
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Thanks for the replies. Thinking about all the ways I have to manage the RMDs is new to me -- even the obvious options (like sell the RMDs worth of holdings now and keep the money in a cash sweep. Duh.).

The increase in the iIRA in 2019 was about the same as the RMD for 2020, so I think I will sell to cash now and make my monthly sweeps from that. Bird-in-hand as I tackle the next big task for 2020: making sense of my overall portfolio and cleaning it up.

Thanks again.
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Old 01-20-2020, 02:19 PM   #12
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Quote:
Originally Posted by RunningBum View Post
The investment choice and the distribution are really two different things. You could sell a year of what I assume is an equity fund in the IRA, and hold it there in a money market or whatever they offer for a cash sweep, and still do your monthly transfers. .


This!!
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Old 01-20-2020, 02:43 PM   #13
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Quote:
Originally Posted by RunningBum View Post
The investment choice and the distribution are really two different things. You could sell a year of what I assume is an equity fund in the IRA, and hold it there in a money market or whatever they offer for a cash sweep, and still do your monthly transfers. Or you could transfer the whole year out of the IRA if you can make a little better interest in another account.

I think it makes total sense to have a year's worth of withdrawals in cash one way or another.
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Old 01-20-2020, 04:42 PM   #14
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My friend, who works FT, has an inherited IRA worth $100k. His RMD is slightly over $3k and he doesn't need it to pay his expenses. So, what I have him do is to use some of it to pay most of the remaining income taxes due in the following April. To make this work, we wait until late December when I have a good idea of what his total income will be versus his total taxes withheld from his job. He has considerable investment income, also from the inheritance, with no taxes withheld from it. I get him to within $100 on his federal and state taxes due in April.
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Old 01-20-2020, 05:59 PM   #15
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Quote:
Originally Posted by RunningBum
The investment choice and the distribution are really two different things. You could sell a year of what I assume is an equity fund in the IRA, and hold it there in a money market or whatever they offer for a cash sweep, and still do your monthly transfers. Or you could transfer the whole year out of the IRA if you can make a little better interest in another account.

I think it makes total sense to have a year's worth of withdrawals in cash one way or another.
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MichaelB: +2


Yes. This is my "dope slap to the forehead....duh!" moment from this conversation. Or perhaps more kindly, my "light-bulb moment."

So tomorrow's task is to sell enough in the iIRA to cover 2020's RMD, put it in a MMF in the iRIA (or the sweep fund...not sure quite how Vanguard will handle this), and then change my standing monthly order to transfer from the MMF rather than selling holdings proportionately.

And repeat each January henceforth.

And stop worrying about the market etc and doing the "right" thing or the "smart" thing .... at least with respect to the iIRA.

Again, thanks to all.
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Old 01-20-2020, 06:30 PM   #16
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A refinement on that might be to sell a year's worth now, and then quarterly sell another three month's worth, as long as the market is "normal". That way you've always got 9-12 months in cash, and if the market does tank, you could delay selling the next set to see if the market recovers. Otherwise, you're coming into December draining the cash and have no choice to sell. A mild bit of market timing that I've heard often on this board.
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