When & How do you take RMD?

[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?

 

[MBAustin]

It's strictly a personal choice IMHO. Some people like to get 1/12 monthly, to simulate a paycheck. Others prefer once a year, often at the beginning or end of the year. The main thing is not to forget to do it, because the penalties are steep.

 

[PaunchyPirate]

It is a personal choice, I think. My mother takes hers in equal monthly payments. It just seems easier for her to deal with it as part of her cash flow.

Some take it at the very end of the year because it leaves more money in the market longer to earn more money. Also, if you wait till end of year, you can possibly set up tax withholding to be equal to your entire tax obligation for the year. This would help avoid any penalties for not paying estimated taxes thru the year.

Some take it at the beginning of the year because they know that sum is what they need to live the entire year on.

I don’t think there is a RIGHT answer. It is whatever works best for you.

 

[eytonxav]

I just setup auto monthly distributions from an IRA cash position.

 

[Animorph]

For DM we usually take it at the end of the year. This allows an extra year of equity growth or bond fund dividends in the tIRA, which is a good thing on average. If you are not selling equities to meet the RMD and not reinvesting the RMD in taxable account equites that might see a step-up in basis, and not reinvesting in taxable account bonds, then the timing is less critical.

That said, DM wanted to take it all out early this year to gift to her kids.

DM does have a minimum 25% bonds in her tIRAs, which can mitigate the risks of waiting a year to withdraw. If stocks are down we can cash out bonds to meet the RMD's. Or we can just rebalance if things are normal. It is always possible to park the RMD in cash or bonds if you don't want to withdraw it immediately and don't want to risk equity volatility.

 

[REWahoo]

It's strictly a personal choice IMHO. Some people like to get 1/12 monthly, to simulate a paycheck. Others prefer once a year, often at the beginning or end of the year. The main thing is not to forget to do it, because the penalties are steep.

^ This.

I do mine 1/12 monthly while DW does hers in full in early January. She "gives" most of it to me and I use it to pay our annual property tax bill, then give that amount back to her 1/12 monthly throughout the year.

 

[Car-Guy]

I started drawing down my tIRA's (but not my 401k) a few years ago (before 70.5/72) so when I'm forced to take RMD's at 72 I won't be getting hit by IRMAA. (Unless they change the rules )

I've been taking my withdrawals in early January with zero withholding's and then adjusting in late December with another withdrawal with whatever I need to cover the taxes for the year.

 

[Souschef]

I have a spreadsheet to schedule my RMD withdrawals during the year. Here are how mine work:
Quarterly for estimated tax payments
Birthday gifts to our sons J,J,A,S
Charitable (QCD) gifts at certain times during the year
I have attached a sample I created for someone else here. It also calculates your RMD

 

[RetireeRobert]

Excpet for my planned charitable RMD distributions, I take mine once a year, fairly early in the year just to have it done and not be bothered to have to remember about it later. I decide how much I will be donating to charity via RMD withdrawals early on, but may spread those donations out later into the year.

 

[SecondCor521]

Whatever frequency one chooses, I think it's a good idea to automate it.

My Dad happens to do once monthly, but it's all automatically done by a Vanguard RMD service for free. They do the sell, tax withholding, and transfer into a taxable account automatically. They also recalculate the new RMD each year. So it's all on autopilot.

This is convenient and avoids IRS penalties for not taking the full amount required.

I strongly suspect all the big custodians offer similar services.

 

[davebarnes]

1. Everything is done after my visit with my tax prep guy in February.
2. I am doing 12 QCDs in 2021 to use up most of my RMD.
3. A $2500 RMD will be done before March 01. Estimated taxes sent on March 31.
4. Roth conversion will be done before March 01. Estimated taxes will be taken from taxable account and sent to IRS and Colorado on March 31.

I look forward to the day when our tIRAs contain only enough money for QCDs.

 

[Koolau]

Taking my RMD at about the same time each year and for the entire year (with option to take more later if needed, of course) is one way I do my re-balancing. I'm sure I could usually eek out a bit more earnings by going by the month. Right now, I'm into simple - not necessarily most efficient. YMMV

 

[OldShooter]

Our assets are 100% tIRA now. We draw cash ad hoc as we need it during the year to supplement SS, pay property taxes, QCDs, etc. Zero income tax withholding. Then in early December we pay safe harbor income taxes via tIRA withdrawals @ 100% withholding. After that we finish up with a draw to hit the RMD.

 

[Dtail]

It will be an interesting choice for me down the road in that from one perspective, I would like to withdraw it all at the end of the year in order to withhold 100% of tax liability. OTOH, I currently take monthly withdrawals from the various accounts to fund the living expenses.

Edit - I just saw Old Shooters post and perhaps that might be the road for me too.

 

[TrvlBug]

This will be the 3rd year for DH's RMD. We had it scheduled for Q4 taking all of our taxes out at that time. For this year and future years, we have changed the RMD to 1/2 in January, no taxes taken out. The other half in Q4 with adjustments for taxes and QCDs. We each have an inherited IRA which we also rescheduled to January.

One thing I wasn't aware of with Fidelity is that if your RMD is over a certain $ amount, you cannot make changes online and must call Fidelity...arghhhh. Another good reason for splitting the withdrawals.

Bottom line, no one size fits all. Whatever you prefer.

 

[misanman]

I have rmds at fidelity and have always made the changes online. Don't remember ever calling them with regard to rmds.

 

[misanman]

Or maybe my rmds are too small.

 

[RunningBum]

I'm not yet of RMD age. When I get there, if I still have anything in my tIRA, I will most likely take it out (or use it for QCDs) early in the year. Otherwise if I died during the year that would be one more burden for the executor to do.

Besides, if you put it in a taxable account you might be able to limit taxes by investing and holding for LTCGs, or investing in something that pays qualified dividends, or investing in tax-free municipal bonds or something like that. If it's in a tIRA, it's all taxed as regular income when you withdraw. So I'd rather take the money out of the tIRA early and let it grow in taxable with possibly more favorable investments wrt to taxes.

If you like the concept of monthly "paychecks", do 1/12 each month, but leave good records for your executor. But also consider that you could withdraw the whole RMD in January and put it in an investment account, and set up auto withdrawals from your investment account each month into your checking account.

 

[street]

I really dislike even thinking about it. Not that I have to pay the taxes, just that it all works out so I pay all need too.

Do some here have them take the taxes out before they send the check?? How can it be trued up with markets changing till the first of each year?

 

[OldShooter]

I really dislike even thinking about it. Not that I have to pay the taxes, just that it all works out so I pay all need too.

Do some here have them take the taxes out before they send the check?? How can it be trued up with markets changing till the first of each year?

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.

 

[badatmath]

One of my relatives takes 1/12 per month and seems to find it annoying in some fashion (IDK why) but I went to search on a tax question for him and ran across an article "most take it in Dec" which is what prompted the thought. I am all for least annoying possible.

 

[street]

Thanks OldShooter.
I guess it will all work out I just get a little intimated by it and hate to think about that time in my life. Lol

 

[Koolau]

Thanks OldShooter.
I guess it will all work out I just get a little intimated by it and hate to think about that time in my life. Lol

Trust me, the worst thing about that time of life is NOT RMDs, it's being that old! Your custodian will tell you exactly how much you have to take to keep the Feds happy (with you.) I personally do a hefty (usually 20% withholding) on my RMD. That typically covers most of my un-withheld income for tax purposes. You'll figure it out easily and will give thanks that you have a 1st world problem (taking those darned RMDs)! YMMV

 

[TrvlBug]

I have rmds at fidelity and have always made the changes online. Don't remember ever calling them with regard to rmds.

All inherited IRAs require ANY changes be made by a Fido rep. Traditional RMDs 100K+ require Fido intervention for ALL changes. We split that one 50/50 and can now make changes.

 

[RxMan]

I actually considered doing quarterly RMDs but I’m so far away from reaching the point of being required to take RMDs I have time to change my mind.