When & How do you take RMD?

[donheff]

DW's big RMDs are coming up in a few years so this thread is a helpful primer. I like the idea of automated monthly payments to keep things simple but it does seem like that could complicate getting the tax withholding right when taking RMDs from multiple accounts. Old Shooter's approach of paying the safe harbor amount in a single 100% withheld withdrawal from one IRA seems like a sensible approach. Maybe set most accounts and my pension to zero withholding and set one IRA account aside for taxes. I currently have all of our estimated taxes including DW's pension and SS, and all of our anticipated dividend and CG taxes, withheld from my pension. But setting it all into one annual payments is appealing.

[Midpack]

Thanks for answering a question I hadn’t thought of yet. I’ll plan on quarterly, if I can automate the withdrawals at VG all the better.

[audreyh1]

Quote:

Originally Posted by donheff I like the idea of automated monthly payments to keep things simple but it does seem like that could complicate getting the tax withholding right when taking RMDs from multiple accounts.

For multiple IRAs, you don’t have take the RMD amount from each account, you can take it from one account, as long as the total amount meets the RMD requirement.

Nevertheless, we each plan to merge our IRAs into a single account (each) to simplify RMD calculations and withdrawals and facilitate automation.

Or maybe you meant multiple accounts as in RMDs for each of you. I guess you just have to split required withholding in some manner.

[jerryo]

I have three retirement accounts, one federal TSP and two with brokers (Fidelity and T Rowe, and started taking my RMD's in 2019.

Since each institution calculates my RMD based on their 12/31 balance, I find it easiest to take RMD's from each of the three accounts.

The RMD from TSP was easiest to take/automate as monthly withdrawals. I have them withhold 20% for taxes and transfer the remainder directly to my checking account. Since it's hard to stop and re-stop monthly payments from TSP (must be done by mail), I just had them keep paying through 2020, despite the fact that their was an RMD holiday because of COVID.

I've automated the RMD's my retirement brokerage accounts to be paid each year in early December (to maximize earnings). I also have the brokerages withhold 20% for taxes and then just transfer the remainder to my after-tax accounts. It was fairly easy to have the brokerages skip transferring in 2020, so I did.

This was a bit nerve-wracking to set up (and I will re-check with my brokers this fall to make sure the 2021 withdrawals are in place), but seems to be working fine.

[phil1ben]

I do the RMD for my 88 year old mother who fortunately does not need the income. She normally takes the RMD in full in January but decided to wait this year (2021) to see if Biden decides again to suspend the requirement.

[OldShooter]

Quote:

Originally Posted by donheff ... Old Shooter's approach of paying the safe harbor amount in a single 100% withheld withdrawal from one IRA seems like a sensible approach. ...

Just for the record, I am not smart enough to have come up with that idea, so I won't claim it as "my approach." I got the idea here on the forum, but sorry to say I can't remember who to thank.

On a related note I just roughed out our 2020 taxes and it looks like the safe harbor 110% payment last month resulted in an overpayment of about 15%. No big deal in this interest rate environment. Also, give the resurrection of RMDs, the safe harbor payment for 2021 taxes will probably result in an underpayment. So maybe even a wash on financing the government for two or three months.

[Koolau]

Quote:

Originally Posted by phil1ben I do the RMD for my 88 year old mother who fortunately does not need the income. She normally takes the RMD in full in January but decided to wait this year (2021) to see if Biden decides again to suspend the requirement.

That sounds like a wise approach. Good on you for looking after your mother's financial welfare.

Now, here's one you don't hear too often on ER Forum: I actually NEED the money! I'll be taking my RMD (and a bit more) for the year's expenses not covered by SS and modest pension. YMMV

[RetireeRobert]

Quote:

Originally Posted by phil1ben I do the RMD for my 88 year old mother who fortunately does not need the income. She normally takes the RMD in full in January but decided to wait this year (2021) to see if Biden decides again to suspend the requirement.

Hadn't thought of that, another waiver of RMD's for 2021. I kind of suspect though, that instead of another RMD reprieve, IRA owners might face some more stringent and more taxing rules changes proposed.

[wolf]

Quote:

Originally Posted by OldShooter No worries, no calcualting. Just pay the safe harbor amount; 100% or 110% of previous year's taxes. Little hassle: Pay in December by 100% withholding from a tIRA withdrawal.

Oldshooter. Just to clarify. Instead of paying estimated taxes. You take a
IRA distribution in December, (previous years $ tax due).
And have the entire distribution, withheld. By claiming 100%
Withholding. Never thought of that. I've been sending in
estimated checks 4 times each year. Pain. Having to remember.

And there is no "penalty" ? The IRS, does not get "upset", having to wait the entire year to receive
estimated taxes.

Also, what does the small " t ", in tIRA stand for ? Thanks....

[OldShooter]

Quote:

Originally Posted by wolf Oldshooter. Just to clarify. Instead of paying estimated taxes. You take a IRA distribution in December, (previous years $ tax due). And have the entire distribution, withheld. By claiming 100% Withholding. Never thought of that. I've been sending in estimated checks 4 times each year. Pain. Having to remember. Also, what does the small " t ", in tIRA stand for ? Thanks....

Yup, that's pretty much it. The safe harbor is either 100% or 110% of previous year taxes due depending on previous year's income. Same-o for our state. So I just pull out the old tax return, figure the amounts and that's it. 2 IRAs x state, federal = 4 transactions. In the fine print, Schwab software doesn't permit 100% withholding so the withheld amount is something like 99%. No dates really to remember except to notice it's December. After the tax payments, we can draw anything more needed to satisfy RMD. tIRA seems to be the lingo around her for taxable IRA.

This is one of the more valuable things I have learned on the forum here.

[Koolau]

Quote:

Originally Posted by wolf Oldshooter. Also, what does the small " t ", in tIRA stand for ? Thanks....

t = "traditional" (as opposed to, for instanace Roth.)

[RunningBum]

I always thought the 't' stands for traditional IRA.

If you are just looking for a way to not mail in quarterly estimated taxes you could use EFTPS and schedule all 4 estimated payments at the start of the year. But doing the withdrawal with full withholding at the end of the year sounds like it works well as long as you are at least 59.5. I'll be there later this year but I watch my income for the ACA subsidy so I'll stick with the estimated tax payments rather than a late year withdrawal that might push me over the ACA cliff. Since this thread is about RMDs, ACA doesn't play a role, nor does the 59.5 age limit.

[OldShooter]

Quote:

Originally Posted by RunningBum ... I'll stick with the estimated tax payments rather than a late year withdrawal that might push me over the ACA cliff. ...

Well at its most basic the trick is simply that you can make one payment any time during the year without worrying about calculating anything or keeping track of strict calendar dates. Once you have finished prior year taxes you have your safe harbor number and can make the payment.

There's also nothing that says that the asset sales to support the payment have to occur at the same time as the payment. Someone who wanted to lock in profits could sell in January, then park the money in the IRA until such time they chose to make the withholding payment.

[W2R]

Quote:

Originally Posted by badatmath I know this HAS TO be on here but I could not find it. By when/how I mean once a year, quarterly, monthly etc. Any particular reason one is better than another?

Probably not.

For me, the RMD is required to be withdrawn from my TSP (which is sort of like a 401K for government employees). I have the TSP all invested in the "G Fund" (a government bond fund guaranteed not to decrease in share price).

I have it set up for equal monthly withdrawals, and the sum of them at the end of the year is enough for my RMD. It's all working out nicely.

I use these small withdrawals to cover part of my living expenses. For me this monthly withdrawal scheme works best.

[themillerman]

I'm planning to take mine out either monthly or quarterly which would be like dollar cost averaging. I'd hate to wait until the end of the year and have to take the whole yearly RMD during a particularly down market.

[Nightingale9]

I agree with RunningBum. Just from a tax planning perspective, if you’re 72 or older, it makes sense to prioritize equities into your taxable account; and then it makes sense to take out your RMDs early in the year and invest that in equities as part of your taxable account.

[Bruno]

I take my dads inherited RMD when the market is up. Last 3 years has been after the first of the new year.

[indiajust]

I plan to roll my ira assets to a schwab intelligent robofund. they can auto calculate and and robo transfer to taxable account for spending. Set it up any way you like, monthly, quarterly, first of year... just set and forget. Assets remaining in account are automagically rebalanced.

[audreyh1]

Quote:

Originally Posted by themillerman I'm planning to take mine out either monthly or quarterly which would be like dollar cost averaging. I'd hate to wait until the end of the year and have to take the whole yearly RMD during a particularly down market.

There are two different steps:

1. Selling something in anticipation of a withdrawal,
2. Withdrawing the funds from the IRA.

They don’t have to be done at the same time. You can set aside funds for withdrawal early in the year, but wait until late in the year to withdraw them.

[RunningBum]

Quote:

Originally Posted by audreyh1 There are two different steps: 1. Selling something in anticipation of a withdrawal, 2. Withdrawing the funds from the IRA. They don’t have to be done at the same time. You can set aside funds for withdrawal early in the year, but wait until late in the year to withdraw them.

And conversely, you can withdraw from your IRA, but invest it in the same thing in your taxable account if you don't want to be selling in a down market.

Given a choice, you really would rather be withdrawing from your IRA at a lower point than a higher point, to reduce taxes.