Required Minimum Distributions

[Gone4Good]

Stock markets tend to go up more often than they go down. Therefore getting your money into the market as early as possible will be the best option over time when building the portfolio. So during the withdrawal phase, leaving your money in as long as possible and delaying your RMD until the end of the year should work to your advantage more years than not.

Of course volatility works against you during deaccumulation. So maybe the right answer is to sell out of Wellesley in the IRA completely and swap it for something in your AA that is less volatile. That leaves your Wellesley allocation to do it's thing without worry of needing to sell at inopportune times.

 

[braumeister]

Most of you probably know this, but if you take the RMD in December and have taxes withheld from it, there is another advantage. The tax amount is deemed to have been withheld evenly throughout the year. That can save you from bothering with sending in estimated taxes.

 

[donheff]

Not sure I see this issue as any different than the many discussions we have had about when to make portfolio withdrawals in general. Many people do it all at one annual point. e.g. accumulate and then pull distributions, sell additional shares of the most appreciated assets, re-balance to desired AA, rinse and repeat next year. Others do it over the course of the year. Some of us play a little bit of timing, trying to guess when we have gotten a significant climb and liquidating equities then.

The only difference I can see with RMDs is that they may exceed your needed funds for expenses in which case you simply invest the excess in taxable. For tax reasons, I plan to invest excess RMDs in equity indexes increasing the bond holdings in 401ks to maintain the proper AA.

 

[JOHNNIE36]

Most of you probably know this, but if you take the RMD in December and have taxes withheld from it, there is another advantage. The tax amount is deemed to have been withheld evenly throughout the year. That can save you from bothering with sending in estimated taxes.

I think I'll use this "excuse" or "reason" to just delay my RMD until December each year. We don't need or use these RMD's to live on due to my pension and our Social Security. As I said in initial post, I only take the RMD because I have to and then I usually stick it in another account. I like Wellesley and have another taxable account at Vanguard. I can change that fund to an Admiral for the lower expense. I think I'll set up an automatic withdrawal from the IRA to the taxable account on December first each year. This satisfies the RMD, takes care of the estimated tax problem and would probably cover the hopeful increase in value toward the end of the year.

Thanks for all the information provided. Through discussions like this, you can see how valuable the site can be.

 

[ERD50]

Originally Posted by ERD50 View Post
More seriously, one could just forget or get distracted. I kind of like the idea of setting up a withdraw at the start of the year, to be taken out on a pre-determined date.

Originally Posted by REWahoo View Post
Which one could also just forget or get distracted.

"A memory is a terrible thing to lose..."

Actually, it can be a "set and forget." My RMD's are set for once a year, same date each year and it's all automatic. The only thing I have to remember is to have enough cash in the accounts for this to work properly. I currently have enough cash for the next 3-4 years. Therefore, I have a free pass to be forgetful and/or distracted for the next 6-8 years.

Right - redduck's response is along the lines of what I was thinking. Not a big deal either way, but I'd just be more likely to have things go smoothly if I scheduled a 4th Q RMD withdraw in January when I got my EOY statement and RMD calculation, or set it when I do my taxes and am thinking of these things. And if I forget then, I've got all year as a back up.

If I wait until after the last div payment, that could mean having to get it done the last 2 weeks of December, when a lot of other things are going on. It certainly can be done, not that tough at all, and it makes some sense. I just find that I prefer to have things set ahead so I can forget them, and not need to tend to something on a tighter schedule if it is easily avoided.

-ERD50

 

[ERD50]

I don't know about all brokers and 401k admins, but Schwab told me that if I want anything withheld from an IRA distribution (RMD or otherwise), I'll need to provide a number in dollars (as opposed to percentages, filing status, number of dependents, etc.). It sounds like they don't want to be in the tax business. They will calculate the amount I need to withdraw to meet gov rules though. The withholding would be part of the withdrawal.

I just realized that could be used to simplify things (assuming other brokers allow the customer to set the $ or % withholding). Assuming your RMDs are as large as your total taxes, one could set quarterly RMD payments, and set the withholding to add up to > 90% of the previous year's tax.

Then you would not have to fiddle with estimated payments. Again, not a big deal, but I like simple when I can.

-ERD50

 

[GrayHare]

An argument for early-in-the-year withdrawal from a tIRA is a reduction in ordinary income taxes. Money left in a tIRA generates dividends that will be taxed at ordinary rates rather than at the lower rate of tax on dividends.

 

[redduck]

I can do that.

Have you made IRA withdrawals where they wouldn't accept your request to have a specific dollar amount withheld?

No, I haven't ever requested a specific dollar amount withheld.

With my two IRA's (one with Schwab) I have only used a percentage, never a specific dollar amount withheld. I only take out RMD money once a year for both State and Federal.

Maybe you can download "Schwab's IRA Required Minimum Distribution Request Form (apparently that's what I did a few years ago) and it's all there.

I am looking at Schwab's Tax Withholding Election section on page 4 of the above mentioned form: "I want federal tax withheld at the rate of _____%." It doesn't have the option of putting in a specific dollar amount. Same deal for state tax.

However, since you can put in a percentage from 10 to 99 (for federal withholding), you can probably get pretty close to the dollar amount you want.

 

[DrRoy]

Just work up a standard distribution schedule and stick to it. Getting into market timing is a slippery slope.

 

[mickeyd]

Flip a coin. Heads~ Take it now- Tails~ Take it later.

RMD is a requirement to pay taxes, not a requirement to spend.

As for me, I take RMD in December just because...

 

[misanman]

My understanding is that RMDs must be satisfied for the year before Roth conversions are allowed. Could be a factor for some.

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[Souschef]

RMD

I have 3 IRA's, and have one spreadsheet for RMD's. I downloaded the chart from the IRS. I plug in the Dec 31 balance for the IRA's and my spreadsheet calculates the amount every year. Then I annotate what I am doing,e.g transferring shares to regular account, QCD's or taking part of the proceeds.

 

[youbet]

I just realized that could be used to simplify things (assuming other brokers allow the customer to set the $ or % withholding). Assuming your RMDs are as large as your total taxes, one could set quarterly RMD payments, and set the withholding to add up to > 90% of the previous year's tax.

Then you would not have to fiddle with estimated payments. Again, not a big deal, but I like simple when I can.

-ERD50

Yes, and that's pretty much my plan.

Right now I do quarterly estimated tax payments. When DW starts RMD's in 2017, I'm planning on stopping estimated payments and having that amount plus the amount needed to cover the RMD withdrawal taken out of the RMD withdrawal as withholding in December.

You don't need to set quarterly RMD payments, just do it in Dec. Unlike estimated payment, withholding doesn't have to be "timely." You can withhold your entire year's tax obligation on Dec 31st.

 

[Eagle43]

I take RMD in 3rd week of December and ask Vanguard to withhold 20%. Since I don't need it, the after-tax remainder is invested in Target Retirement Income.

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[iac1003]

Glad you have Wellesley and not DH's TIAA-CREF which has screwed up the RMD distribution 2 times. I swear, they are the most incompetent I have seen.


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[ERD50]

...
You don't need to set quarterly RMD payments, just do it in Dec. Unlike estimated payment, withholding doesn't have to be "timely." You can withhold your entire year's tax obligation on Dec 31st.

I may be misunderstanding you, or the situation I'm describing is different from what you are covering - I was thinking in terms of having my entire tax obligation covered by just the RMD withholding.

IOW, I might have income from dividends (with no withholding) in all 4 quarters. In that case, if my only withholding was from the RMD in Dec, might I run afoul of IRS regs? My thinking was, spread it out evenly over the 4 quarters, and it would be close enough to actual income to stay in the guidelines?

I understand that I can do the RMD in Dec, and if I withhold a proper amount to cover taxes on the RMD, that's fine. But I thought that would not cover me for any additional taxes due in Q 1-3?

edit/add: OK, so by saying this "Unlike estimated payment, withholding doesn't have to be "timely."" you are saying that Dec w/h would apply to all other tax obligations in any quarter?

-ERD50

 

[kaneohe]

Some folks withhold the entire RMD if needed and allowed.

 

[youbet]

edit/add: OK, so by saying this "Unlike estimated payment, withholding doesn't have to be "timely."" you are saying that Dec w/h would apply to all other tax obligations in any quarter?

-ERD50

Yes. To my understanding est payments must be timely but not withholding..

 

[audreyh1]

I may be misunderstanding you, or the situation I'm describing is different from what you are covering - I was thinking in terms of having my entire tax obligation covered by just the RMD withholding.

IOW, I might have income from dividends (with no withholding) in all 4 quarters. In that case, if my only withholding was from the RMD in Dec, might I run afoul of IRS regs? My thinking was, spread it out evenly over the 4 quarters, and it would be close enough to actual income to stay in the guidelines?

I understand that I can do the RMD in Dec, and if I withhold a proper amount to cover taxes on the RMD, that's fine. But I thought that would not cover me for any additional taxes due in Q 1-3?

edit/add: OK, so by saying this "Unlike estimated payment, withholding doesn't have to be "timely."" you are saying that Dec w/h would apply to all other tax obligations in any quarter?

-ERD50

My understanding, yes. Which is why people favor it. We're not obligated to take RMDs yet, so haven't done this.

 

[ERD50]

Yes. To my understanding est payments must be timely but not withholding..

My understanding, yes. Which is why people favor it. We're not obligated to take RMDs yet, so haven't done this.

Thanks, now I just need to file this away for ~ 9 years!

-ERD50

 

[youbet]

My understanding, yes. Which is why people favor it. We're not obligated to take RMDs yet, so haven't done this.

We haven't started RMD's yet either, but it's on the immediate horizon (2017 and 2018) so we've been busy asking questions when opportunities arise.

Currently we make quarterly est tax payments to cover the taxes on investment income and my SS. Our tentative plan is not to make est tax payments beginning in 2017. In that year, I'll sit down in Nov and do a pro-forma on our taxes and determine how much to withhold from DW's RMD to cover taxes on the RMD itself and also SS and investment income. Then, pull the trigger on the RMD.

Schwab has confirmed we can tell them how much to withhold and they will do that exactly.