RMD's [Required Minimum Distributions]
RMD's [Required Minimum Distributions]
A friend of mine will be turning 70 in November of this year, and therefore it will not be too long before RMD's kick in. At present her retirement portfolio is a combination of mutual funds and ETF's - Large cap, small cap, international, intermediate bond fund, small holding of REIT ETF. How should her portfolio look to account for the fact that she is going to need to be with drawing money from it on a regular basis to satisfy the RMD requirement? And where can I find some good reading on how RMDs work - i.e. how much and how often you need to withdraw, etc. Thank you in advance.
Re: RMD's
I would start with IRS Publication 590 which is available via the IRS web sitebrak wrote: And where can I find some good reading on how RMDs work
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Re: RMD's
Probably depends on where it is. Vanguard will prorate the RMD withdrawals from all the funds in my IRA so they remain in the same proportion to each other. TIAA-CREF requires me to specify which funds I want the RMD taken from.brak wrote: How should her portfolio look to account for the fact that she is going to need to be with drawing money from it on a regular basis to satisfy the RMD requirement?
Also depends on what she intends to do with it after it is withdrawn. Will she be spending it or reinvesting in taxable accounts?
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Re: RMD's
Why not just sell enough of something to fund the withdrawal. What that something is would be figured from what is most over its target allocation so that you rebalance a little bit at the same time. We are talking about a 401K or IRA where there is no tax consequence or transaction cost that matters. I think a lot of people exercise this transaction close to the end of the year to postpone tax payments to year end. None of this rises to the level of a strategy but is just practical asset management.brak wrote:What I am trying to get at is do you just set aside in the account every year a certain amount in a money market fund to account for the amount you are going to be withdrawing, or what? What's the best strategy?
Re: RMD's
There was a conversation here about a week ago titled "How exactly does Vanguard's RMD service work". http://www.bogleheads.org/forum/viewtop ... 1&t=138966. You should find pointers there.
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Re: RMD's
Your RMD amount is based the 12/31 balances of the previous year. You could set aside that money into an MM fund early in the year and forego any appreciation on it until you actually withdraw the funds. Of course if the market tanked, the money is set aside and you avoid having to cash in more assets to meet the required amount. Some would that call that market timing though.
Re: RMD's
I have Vanguard calculate the RMD (single IRA so all in one place) and then sell the rounded up amount and buy the same amount in a taxable fund. I usually do it late in the year to allow for possible increase and to see if Congress will re-instate the QCD (qualified charitable distribution) where you can have checks made out to charitable organizations and those withdrawals are tax-free. (I don't itemize, but there could still be advantages for those who do but want to keep AGI low.)
Re: RMD's
For sure it would just be a slight ratcheting down of the risk and prospective return of the portfolio, done consistently over an extended time.pshonore wrote:Your RMD amount is based the 12/31 balances of the previous year. You could set aside that money into an MM fund early in the year and forego any appreciation on it until you actually withdraw the funds. Of course if the market tanked, the money is set aside and you avoid having to cash in more assets to meet the required amount. Some would that call that market timing though.
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Re: RMD's [Required Minimum Distributions]
Like your friend I have a mix of Vanguard mutual funds and ETF’s in my IRA. I will also be taking my first RMD beginning next year (in December). Currently I’m making quarterly estimated tax payments to the IRS. However, next year I will take the full amount of the federal estimated tax from my RMD. My plan is to have Vanguard calculate the RMD amount and then set up an automatic withdrawal for the entire amount from the S-T Investment Grade and reinvest the full amount in the Prime Money Market Fund in my taxable account. Once the RMD has been completed I will make any necessary adjustments to my asset allocation plan.
Mike
Mike
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Re: RMD's [Required Minimum Distributions]
More importantly, because in some cases it can make a difference in total taxes paid, your friend needs to determine whether to take the full 2015 RMD in 2015, part of it in 2015, or none of it in 2015 but prior to 4/1/2016. Any part of the 2015 RMD deferred until 2016 will be taxable in 2016 along with the 2016 RMD. Still, in some cases deferring a portion to 2016 will save on taxes and in most of these cases the savings will come from lowering the amount of SS included in AGI in 2015 more than it increasing SS in AGI in 2016. The best time to check into this is late in 2015 when 2015 taxable income is fairly obvious and you are also in the best position to look at how 2016 will differ. This option for RMDs ONLY exists in the first RMD distribution year.
Re: RMD's [Required Minimum Distributions]
Same here.I have Vanguard calculate the RMD (single IRA so all in one place) and then sell the rounded up amount and buy the same amount in a taxable fund. I
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Joe