Question re: RMD

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bru
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Question re: RMD

Post by bru »

I have to take a RMD from an inherited IRA.

Can I take the RMD piecemeal rather than all at once? And if I do I assume it is considered income in the month it was taken. I need to report monthly income so this is why I am asking.

If I wait until say December to take the entire distribution my income for that month will be larger than typical. If I spread it out it will add less of a difference. Unfortunately I just thought of this now, with only three months left to complete the distribution.
chaz
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Re: Question re: RMD

Post by chaz »

Maybe your answer is in www.irs.com Pub 590.

I don't know as I take mine in Dec to get the advantage of compounding.

Good luck.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
fposte
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Re: Question re: RMD

Post by fposte »

You should be able to take it piecemeal. I believe Vanguard allows you to automate it, in fact, so you might be able to set up a monthly distribution and then just let it ride.
Swymer
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Re: Question re: RMD

Post by Swymer »

chaz wrote:Maybe your answer is in http://www.irs.com Pub 590.

I don't know as I take mine in Dec to get the advantage of compounding.

Good luck.
How much of an advantage do you get from compounding?

Because I'm in the same boat with having to take RMDs and am still trying to find the ''best'' way to take them.
Billyboy
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Re: Question re: RMD

Post by Billyboy »

I had mine set up by Vanguard. I have it distributed monthly. I can also go to the Vanguard RMD site and skip a month, etc., as long as the req'd yearly amt. is distributed for the year.
Bill
chaz
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Re: Question re: RMD

Post by chaz »

Swymer wrote:
chaz wrote:Maybe your answer is in http://www.irs.com Pub 590.

I don't know as I take mine in Dec to get the advantage of compounding.

Good luck.
How much of an advantage do you get from compounding?

Because I'm in the same boat with having to take RMDs and am still trying to find the ''best'' way to take them.
It varies, but better than nothing.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
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mickeyd
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Re: Question re: RMD

Post by mickeyd »

Can I take the RMD piecemeal
If by piecemeal you mean monthly (or qy or sa), the answer is yes. IRS only cares about how much you receive in any calendar year.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle
FinancialDave
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Re: Question re: RMD

Post by FinancialDave »

Swymer wrote:
chaz wrote:Maybe your answer is in http://www.irs.com Pub 590.

I don't know as I take mine in Dec to get the advantage of compounding.

Good luck.
How much of an advantage do you get from compounding?

Because I'm in the same boat with having to take RMDs and am still trying to find the ''best'' way to take them.
As you might imagine we can't predict the future and in 2008 if you took it in Dec. you probably took a "bath" on your investments.

In most cases on inherited IRA's if you want to keep the money for retirement, you just reinvest it in your taxable account or your Roth, so it doesn't matter when you take it. If you are spending it, then I would just take equal monthly distributions, which basically dollar cost averages the results of market swings.

fd
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GerryL
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Re: Question re: RMD

Post by GerryL »

chaz wrote:Maybe your answer is in http://www.irs.com Pub 590.

I don't know as I take mine in Dec to get the advantage of compounding.

Good luck.

I was thinking about this over the weekend and was going to post it as a new question, but it seems to fit in here:

If we consider dollar cost averaging to be a reasonable (and, some might say, preferred) method for investing, does it also make sense to use a DCA model for taking RMDs? I'm still a few years from having to start RMDs, but I am thinking ahead about how I might do it. It seems that taking a portion monthly or quarterly could prevent the problem of having to take a lump sum at the last minute when the value might have tumbled. Thoughts?
fposte
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Re: Question re: RMD

Post by fposte »

I think DCA has been demonstrated to be economically inferior, actually; it's preferred by individuals for psychological reasons, not financial ones.

I suspect that end of the year RMDs would average out to being more advantageous than monthly withdrawals, because of the market's overall tendency to rise, but I don't know of any actual numbers or studies on that. I piece my RMD out during the year because I use it for specific purposes (mine is from an inherited IRA, and the RMDs are compensating for paycheck deductions going to tax-deferred space); if I didn't need it during the year, I'd delay it until December.
FinancialDave
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Re: Question re: RMD

Post by FinancialDave »

GerryL wrote:
chaz wrote:Maybe your answer is in http://www.irs.com Pub 590.

I don't know as I take mine in Dec to get the advantage of compounding.

Good luck.

I was thinking about this over the weekend and was going to post it as a new question, but it seems to fit in here:

If we consider dollar cost averaging to be a reasonable (and, some might say, preferred) method for investing, does it also make sense to use a DCA model for taking RMDs? I'm still a few years from having to start RMDs, but I am thinking ahead about how I might do it. It seems that taking a portion monthly or quarterly could prevent the problem of having to take a lump sum at the last minute when the value might have tumbled. Thoughts?
This is actually a pretty good idea, but it can also be driven by how you are going to use the money and also your asset allocation - a higher stock allocation can lead to higher volatility, which as you have mentioned can force you to take the withdrawal when you would prefer not to.

If you don't need the money and are going to re-invest it, then I say just take it out in one lump and re-invest in your taxable account.

I am not quite to RMD territory yet, but I certainly would not wait until December to do it, as I just hate to sell when the market is down and it doesn't really bother me if I sell high and the market goes up more - that is a win. In most cases I am going to be taking monthly payments out of the IRA from my cash bucket that is being filed on a regular basis by dividends. To make up any shortfall to the RMD I would probably take that distribution sometime in the 4th quarter and in most cases it is going to come out of cash in the account anyway which is earning next to nothing so in that case it really doesn't matter when I take the distribution.

fd
I love simulated data. It turns the impossible into the possible!
trueblueky
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Re: Question re: RMD

Post by trueblueky »

GerryL wrote:
chaz wrote:Maybe your answer is in http://www.irs.com Pub 590.

I don't know as I take mine in Dec to get the advantage of compounding.

Good luck.

I was thinking about this over the weekend and was going to post it as a new question, but it seems to fit in here:

If we consider dollar cost averaging to be a reasonable (and, some might say, preferred) method for investing, does it also make sense to use a DCA model for taking RMDs? I'm still a few years from having to start RMDs, but I am thinking ahead about how I might do it. It seems that taking a portion monthly or quarterly could prevent the problem of having to take a lump sum at the last minute when the value might have tumbled. Thoughts?
When you DCA during accumulation, you buy more shares when prices are low and fewer when prices are high. Buy low = Good.

When you DCA during drawdown, you sell more when prices are low and fewer when prices are high.
Sell low = Bad.
abyan
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Re: Question re: RMD

Post by abyan »

I assume most people leave the rmd in until December in order to maximize the tax-deferred growth. So it's not just a question of wanting to sell high rather than low, but you also lose some tax-deferred growth as well if you sell before December. But is it enough, cumulatively over a 2-3 decade retirement, to matter?
FinancialDave
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Re: Question re: RMD

Post by FinancialDave »

When you DCA during accumulation, you buy more shares when prices are low and fewer when prices are high. Buy low = Good.

When you DCA during drawdown, you sell more when prices are low and fewer when prices are high.
Sell low = Bad.
In the first place DCA during drawdown is called Reverse Dollar Cost Averaging, (RDCA) for obvious reasons.

Let's look at the RMD from a bigger picture - this is a RDCA event on an annual basis, so the long term effect of it, whether it is good or bad, will be driven by the "sequence of returns" that you might experience over the long term. If you take the distribution always in Dec, then you are always subject to the market in December. Unless you can predict the future of the market I can't see how you could prove that Dec. is any better than Nov. or better than June or January.

fd
I love simulated data. It turns the impossible into the possible!
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bertilak
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Re: Question re: RMD

Post by bertilak »

FinancialDave wrote:Unless you can predict the future of the market I can't see how you could prove that Dec. is any better than Nov. or better than June or January.
We all predict the future of the market -- it will go up. If we didn't believe this we wouldn't invest. (Well, except for dividends)

To the extent we believe there is an upward trend we should leave our money invested as long as possible, or, same thing, keep as much invested as possible. This is especially true if we consider dividends.

That should lead us to favor taking RMDs as late as possible. Sure, for any one year anything can happen, but over time we should play the odds.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
MN Finance
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Re: Question re: RMD

Post by MN Finance »

Clearly you can historically "prove" that the market is better in December than January because the market is higher more than 50% of the days, months, and years. So if you're looking at long term, big picture, out should turn out slightly better to take every December. Now, how much of a nominal difference it actually makes is probably small, but it's still better.
FinancialDave
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Re: Question re: RMD

Post by FinancialDave »

bertilak wrote:
FinancialDave wrote:Unless you can predict the future of the market I can't see how you could prove that Dec. is any better than Nov. or better than June or January.
We all predict the future of the market -- it will go up. If we didn't believe this we wouldn't invest. (Well, except for dividends)

To the extent we believe there is an upward trend we should leave our money invested as long as possible, or, same thing, keep as much invested as possible. This should lead us to favor taking RMDs as late as possible.

Sure, for any one year anything can happen, but over time we should play the odds.
"Playing the odds" sounds like something to be done in Vegas, not with your retirement funds.

:oops:
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bertilak
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Re: Question re: RMD

Post by bertilak »

FinancialDave wrote:"Playing the odds" sounds like something to be done in Vegas, not with your retirement funds.
If you are invested, you are playing the odds, unless you found a risk-free investment.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
sport
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Re: Question re: RMD

Post by sport »

GerryL wrote: If we consider dollar cost averaging to be a reasonable (and, some might say, preferred) method for investing, does it also make sense to use a DCA model for taking RMDs?
When buying, DCA gets you more shares when prices are low and fewer shares when prices are high. If you DCA when selling, you sell more shares when prices are low and sell fewer shares when prices are high. This is not what you want to do. If you want to sell some shares every month, you would do better to sell a fixed number of shares each month, rather than a fixed dollar amount. When you get to the end of the year, you should then adjust the last one or two withdrawals to get the total dollar amount to be correct.
Jeff
Alan S.
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Re: Question re: RMD

Post by Alan S. »

If you intend to pay your taxes through withholding to avoid quarterly estimates, you would tend to back load your RMD distributions so that you don't end up giving the IRS an interest free loan. If you don't want to take your entire RMD in December, at least leave enough of your RMD for the last quarter so you have a large enough remaining RMD to fund your withholding safe harbor or other amount you choose.

This strategy will be worth more once interest rates rise because giving the IRS an interest free loan now is not as much a gift as it would be in a normal interest rate environment.
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