Withdrawal Strategies

[perinova]

Consider what you will do with RMDs - you have to take them, you don't have to spend them, there are tax implications to your withdrawals that can be reduced by gifting them.

Maybe there is a previous thread on this. Can you explain how the gifting can work in reducing tax? IS this pat of Ed Slot's book?

 

[GrayHare]

for info, search on QCD

 

[mickeyd]

Always remember that RMD is a requirement to pay taxes, not necessarily a requirement to spend.

 

[audreyh1]

Maybe there is a previous thread on this. Can you explain how the gifting can work in reducing tax? IS this pat of Ed Slot's book?

The key is to not withdraw all your RMD but to make qualified charitable distributions (QCDs) directly from your IRA. This reduces the amount that counts as taxable income, yet still counts towards satisfying the RMD.

 

[Koolau]

We play this all by ear for the most part. My current goal is to take from my 401(k) and preserve our small cash stash for emergencies (we spent our big cash stack pretty quickly upon retiring 18 years ago.)



The only thing I pretty much set in concrete (well, modeling clay) is save the Roths until last. YMMV

 

[Gotadimple]

Maybe there is a previous thread on this. Can you explain how the gifting can work in reducing tax? IS this pat of Ed Slot's book?

It's called a Qualified Charitable Distribution. Yes you'll find it in Ed Slott's publications and in the IRS publications on IRAs.

Simply put: you can give all or part of your required minimum distribution to a charity. Anything you donate from the RMD is not subject to federal tax.
https://www.irs.gov/retirement-plan...alified charitable,IRA to a qualified charity.

 

[Koolau]

It's called a Qualified Charitable Distribution. Yes you'll find it in Ed Slott's publications and in the IRS publications on IRAs.

Simply put: you can give all or part of your required minimum distribution to a charity. Anything you donate from the RMD is not subject to federal tax.
https://www.irs.gov/retirement-plan...alified charitable,IRA to a qualified charity.

Only problem is that it must be done from a tIRA and not a 401(k) or other type of qualified money. So, for me, it will take some extra planning and manipulation since I finally converted all of my (and DW's tIRAs) to Roths. YMMV

 

[DrRoy]

I would hang on to good yields and sell something else.

 

[rayvt]

The key is to not withdraw all your RMD but to make qualified charitable distributions (QCDs) directly from your IRA. This reduces the amount that counts as taxable income, yet still counts towards satisfying the RMD.

You have to be over 70 1/2 year old to take QCD.

This is tricky here, since many of us posters are younger than 70 1/2 and many are older. Plus it used to be that RMDs also started at 70 1/2 but now is higher, adding to potential confusion.

 

[audreyh1]

You have to be over 70 1/2 year old to take QCD.

This is tricky here, since many of us posters are younger than 70 1/2 and many are older. Plus it used to be that RMDs also started at 70 1/2 but now is higher, adding to potential confusion.

Yes. If you are trying to reduce the taxable income effects of RMDs you are already old enough to do QCDs.

If you want to get started early with QCDs you certainly can start at 70 1/2. And this would also help reduce future RMDs.

 

[rayvt]

Only for subscribers only. What are the key takeaways from the article?

Sorry, I thought it was public. He does have a number of articles that are not paywalled. You can glean a lot from his public articles; I read them and got a lot of good ideas for over a year before finally subscribing.

Takeaway form his recent articles: Stay away from CEFs at this time, go strictly with ETFs.
His reason: CEFs now are primarily held by smalltime investors, not large institutional investors. Smalltime investors are flighty & shortsighted and trade very much on emotion, so they stupidly drive CEF prices far away from what the fundamentals say they should be.

All year he has railed about what they have been doing to GGT and the like. Driving it up to 70% and 100% premium above the NAV, just because the distribution are 12%-15%.

 

[Koolau]

Yes. If you are trying to reduce the taxable income effects of RMDs you are already old enough to do QCDs.

If you want to get started early with QCDs you certainly can start at 70 1/2. And this would also help reduce future RMDs.

While we're talking about all this, has anyone had to move money from (say) a 401(k) to a NEW tIRA to make QCDs possible? If so, are there any tax gotchas to look out for? Any experience would be welcomed.

I really want to w*rk on QCDs this coming year. It just seems so efficient compared to taking my RMD and then claiming charitable deductions against the RMD money.

I did read something (someplace) about needing to file a form (I forget 4604 or some other 4 digit number like that) when doing a QCD. Where do I get that form or is it generated upon creating/funding a new tIRA?

Thanks to all!

 

[SecondCor521]

While we're talking about all this, has anyone had to move money from (say) a 401(k) to a NEW tIRA to make QCDs possible? If so, are there any tax gotchas to look out for? Any experience would be welcomed.

I really want to w*rk on QCDs this coming year. It just seems so efficient compared to taking my RMD and then claiming charitable deductions against the RMD money.

I did read something (someplace) about needing to file a form (I forget 4604 or some other 4 digit number like that) when doing a QCD. Where do I get that form or is it generated upon creating/funding a new tIRA?

Thanks to all!

You can do a direct rollover of a 401(k) into a tIRA. You can then do QCDs from that tIRA as long as you make the QCDs after you turn 70.5.

No tax gotchas unless you're in the rare situation of having after-tax contributions in your 401(k).

No form is required when making a QCD. The main requirements are that you donate directly to the charity from the tIRA (i.e., do not take a distribution and then make a charitable donation), it must be to a 501(c)(3), and you're supposed to obtain a written acknowledgment of the donation from the charity.

You'll then get a 1099-R from your tIRA custodian listing your entire distributions from your tIRA that year. You put that number on line 4a of your 1040. You subtract the QCD total from that number and put the result on line 4b. You're also supposed to write QCD on that line somewhere.

Oh, and there's no requirement to roll it into a new tIRA. If you have an existing tIRA, you can just roll your 401(k) into the existing one.

Finally, QCDs are limited to $100K per taxpayer per year. That limit might be adjusted for inflation this year or next, I don't recall offhand.

That's the basics. You can read about QCDs in IRS Pub 590-B.

 

[mpeirce]

Not sure, but it might be easier to move the entire QCD amount you want to donate to charities each year from the tIRA into your DAF (if you have one). You then have just one QCD each year that clearly is to a qualified charity.

Then you can disburse from your DAF to individual charities as want. No need to get letters from each one. And you can do it anonymously this way too if you want.

 

[braumeister]

Not sure, but it might be easier to move the entire QCD amount you want to donate to charities each year from the tIRA into your DAF (if you have one).

Sorry, but that's specifically not allowed.
QCDs have to go directly to a qualified charity.

 

[mpeirce]

Sorry, but that's specifically not allowed.
QCDs have to go directly to a qualified charity.

Good to know. Thanks.

It looked a little deeper to see if there is another way to find a DAF via a tIRA and found this:

Although you can’t fund a DAF account with a QCD, a gift for the purpose of funding your DAF account still qualifies for the charitable income tax deduction. So, as long as the amount you contributed to your DAF account does not exceed 60 percent of your AGI, there is a good chance your tax liability will be the same whether you take advantage of the QCD or simply fund your DAF account and forgo the QCD.

 

[audreyh1]

Not sure, but it might be easier to move the entire QCD amount you want to donate to charities each year from the tIRA into your DAF (if you have one). You then have just one QCD each year that clearly is to a qualified charity.

Then you can disburse from your DAF to individual charities as want. No need to get letters from each one. And you can do it anonymously this way too if you want.

Unfortunately that is not allowed. DAF’s are not qualified for QCDs.

 

[audreyh1]

Good to know. Thanks.

It looked a little deeper to see if there is another way to find a DAF via a tIRA and found this:

Its not equivalent though. QCDs don’t even show up in your AGI/MAGI - a consideration for IRMAA levels as well as taxes in general. And no need for Schedule A.

Schedule A charitable contributions don’t reduce the AGI, so they don’t help with things like IRMAA. It also takes a lot of items to exceed the standard deduction to make Schedule A worthwhile. It does reduce taxes, just not AGI.

We will probably fund future DAF contributions through donation of highly appreciated assets. This has the benefit of no capital gain showing up on the income/AGI as well as charitable donation on Schedule A to lower taxes assuming you’ve exceeded the standard deduction threshold.

 

[rayvt]

No form is required when making a QCD. The main requirements are that you donate directly to the charity from the tIRA (i.e., do not take a distribution and then make a charitable donation), it must be to a 501(c)(3), and you're supposed to obtain a written acknowledgment of the donation from the charity.

You can have the check from the broker/IRA made out to the charity but mailed to your address. That way you can physically hand it to them. That way the charity doesn't receive an anonymous check that they don't really know who it is from. I suspect they get a lot of contributions in December.

You'll then get a 1099-R from your tIRA custodian listing your entire distributions from your tIRA that year. You put that number on line 4a of your 1040. You subtract the QCD total from that number and put the result on line 4b. You're also supposed to write QCD on that line somewhere.

TurboTax does this for you. For each distribution you enter it asks you what you did with the money.

Finally, QCDs are limited to $100K per taxpayer per year.

Oh no!
Anyway....

 

[Midpack]

Funny thing, in preparation for retirement I studied and considered quite a few withdrawal methods over the past 10-15 years, only to find it's been decided for us. Between Soc Sec, dividends/STCG and RMD's - we'll have more "passive income" than we plan to spend by a good margin.

Best laid plans...

[I could reinvest dividends, but since they are fully taxable there's no benefit. And I have done large Roth conversions for 5 years, but it's not cost effective for me to fully convert.]

 

[Koolau]

Thanks to all for the QCD tutorial. I sorta knew about them, but was confused on the details. Since I have NO remaining tIRAs, I'll have to open one and fund it from my 401(k) then do a QCD from the tIRA.

I'm just a bit queasy about "emptying" the entire tIRA (so there will be no piddly little RMD on it.) How to make it come out 0.00 after the QCD could be problematic. There's always that little bit of left-over, almost no matter what you do to calculate the ending balance. Well, I guess I could just leave some in the tIRA and use it the next year for another 401(k) transfer and just deal with the RMD on it.

Ghhhaaaaackkk! This is getting complicated.

If it weren't for IRMAA none of this would be needed. YMMV

 

[audreyh1]

Initially rollover to the tIRA an amount such that the QCDs you wish to do match your annual RMD. 20x or something. Of course the annual RMD increases gradually, but so could your gifting.

 

[rayvt]

If it weren't for IRMAA none of this would be needed. YMMV

IRMAA isn't really that big of a deal.
In 2004 medicare will be $175/mo. The first IRMAA tier is an extra $70, for $245.

The last year before we went on Medicare our post-retirement employer- subsidized health insurance was $1000/mo. Each.

Of course I'd rather keep the extra $70, but $70 on a $258,000 income is not exactly deadly.

 

[TheWizard]

Thanks to all for the QCD tutorial. I sorta knew about them, but was confused on the details. Since I have NO remaining tIRAs, I'll have to open one and fund it from my 401(k) then do a QCD from the tIRA.

I'm just a bit queasy about "emptying" the entire tIRA (so there will be no piddly little RMD on it.) How to make it come out 0.00 after the QCD could be problematic. There's always that little bit of left-over, almost no matter what you do to calculate the ending balance. Well, I guess I could just leave some in the tIRA and use it the next year for another 401(k) transfer and just deal with the RMD on it.

Ghhhaaaaackkk! This is getting complicated.

If it weren't for IRMAA none of this would be needed. YMMV

You will need to do separate RMDs from your 401(k) and your newly created tIRA.

Let's assume you move $100k into your tIRA.
I don't know your age, but your RMD could be something like $5k or $6k the following year. So you do a QCD of that amount or a little more and you're all set. Remaining balance in your tIRA will be available for QCDs in following years...

 

[COcheesehead]

If you really want to play around with withdrawal strategies, download FI Calc. They have 13 different strategies in a drop down menu and explain each one. Within seconds you can see the results from each one.