RMD Strategy

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hoops777
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RMD Strategy

Post by hoops777 » Sat Sep 03, 2016 9:57 pm

I still have a few years to go but trying to set a plan.Would appreciate any feedback about it.Thanks.
Basic idea
I currently have enough in CD 's and very high quality individual bonds to cover my first 10 years of RMD's.My thought is to put the rest of my IRA in Total Stock and an Intermediate Bond fund,probably VBILX.I would also put the proceeds from my matured holdings into a short term bond fund and have Vanguard's RMD service transfer it out of that to my taxable account.
In my taxable account I will have Total Stock and an intermediate muni bond fund,along with a money market or possibly a short term muni fund.
When the RMD is transferred to the money market I will determine which fund to invest in,leave it in the mm or transfer to my checking account if needed.
I am trying to keep this as simple as possible.
Thanks
K.I.S.S........so easy to say so difficult to do.

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Taylor Larimore
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Re: RMD Strategy ?

Post by Taylor Larimore » Sat Sep 03, 2016 10:02 pm

hoops777:

Sounds like a good plan to me.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Watty
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Re: RMD Strategy

Post by Watty » Sat Sep 03, 2016 10:07 pm

A big problem is that you will not know how big the future RMDs will be each year until you know the balance at the beginning of the year.

I don't see that you are gaining anything by trying to have specific funds earmarked for the RMD. I would just keep everything in a simple mix of index funds and do the RMD as part of your normal rebalancing. Or you could just keep it in a target retirement fund if there are not any issues like also having taxable accounts.

Dontridetheindexdown
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Excellent Strategy!

Post by Dontridetheindexdown » Sat Sep 03, 2016 10:18 pm

That is an excellent strategy!

In my opinion (10 years retired) Vanguard Intermediate-Term Bond Index Fund Admiral Shares (VBILX), which you cited, and Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX), which I consider to be an inflation-adjusted cash-equivalent, are 2 of the most overlooked, underappreciated funds in the Malvern universe.

Best wishes in your well-earned retirement!

randomguy
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Re: RMD Strategy

Post by randomguy » Sat Sep 03, 2016 10:27 pm

Watty wrote:A big problem is that you will not know how big the future RMDs will be each year until you know the balance at the beginning of the year.

I don't see that you are gaining anything by trying to have specific funds earmarked for the RMD. I would just keep everything in a simple mix of index funds and do the RMD as part of your normal rebalancing. Or you could just keep it in a target retirement fund if there are not any issues like also having taxable accounts.
+1. having a CD ladder is one things. But dedicating it to RMD's seems to be unneeded. And what do you do in year 11? Keep it simple, pick an AA and take money out.

Dontridetheindexdown
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RMDs are based on the balance at the END of each year, not the beginning!

Post by Dontridetheindexdown » Sat Sep 03, 2016 10:31 pm

RMDs are based on the balance at the END of each year, not the beginning!

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sometimesinvestor
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Re: RMD Strategy

Post by sometimesinvestor » Sat Sep 03, 2016 10:37 pm

will you be working until its time for rmds? I not you may wish to consider partial roth conversions in the years between your retirement year and the time when you have to take rmds Diversifying how your accounts are taxed can be helpful. other than that i agree that your plan is a good one

sport
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Re: RMDs are based on the balance at the END of each year, not the beginning!

Post by sport » Sat Sep 03, 2016 11:47 pm

Dontridetheindexdown wrote:RMDs are based on the balance at the END of each year, not the beginning!
RMDs are based on the balance at the end of the previous year. So, my RMD for 2016 is based on my balance at the end of 2015.

sport
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Re: RMD Strategy

Post by sport » Sat Sep 03, 2016 11:53 pm

You should be aware that you are allowed to make charitable donations directly from your IRA that count towards your RMD, once you pass the age of 70.5. These donations, called QCDs, reduce your income taxes even if you do not itemize deductions. They may also reduce your state income tax if that applies. So, what I do is wait until later in the year until all my QCDs have been made. Then I take the remainder of my RMD from either a stock fund or a bond fund as a rebalancing move toward my target allocation.

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celia
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Re: RMDs are based on the balance at the END of each year, not the beginning!

Post by celia » Sun Sep 04, 2016 1:06 am

I think you are overlooking some things, but first we need some more info:

1) Do you think you have the correct Asset Allocation across all your accounts and do you plan to keep it the same for the foreseeable future?

2) Do you need to use some of the RMDs for living expenses? If so, that will cause your AA to shift over time.

3) Do you plan to withdraw in-kind (ie, withdraw shares instead of cash obtained from selling shares)?

4) How do you plan to pay the taxes on the RMDs? From withwolding from the RMD or from your taxable account or from withholding from another income source or (other)?

5) Most importantly, how will your tax bracket at 70.5 compare with what it is now? Is it possible the value of your tIRA will keep growing even though you are withdrawing RMDs from it?

The thing that strikes me the most is that your Asset Location (as opposed to Asset Allocation) does not seem to be tax-efficient over time. As you withdraw bonds over the first 10 years, it will become worse as there are no special tax benefits for receiving dividends from bonds in your taxable account. It is more tax-efficient to leave bonds in the tIRA and withdraw from stock funds instead. This wiki page explains it best:
https://www.bogleheads.org/wiki/Tax-eff ... _placement

What will you do when you have an RMD that is less than your least-cost individual bond? Can you withdraw part of a bond or will a whole bond need to come out? Since you appear to be looking for simplicity, it would be simpler (and less hassle) to own bond funds instead of individual bonds.

sport wrote:
Dontridetheindexdown wrote:RMDs are based on the balance at the END of each year, not the beginning!
RMDs are based on the balance at the end of the previous year. So, my RMD for 2016 is based on my balance at the end of 2015.
The "year" starts on January 1 which is always a holiday in which the markets are closed. Technically, the value on January 1 is always the same as at the end of the previous year. But the IRS always refers to the year-end balance in order to be consistent.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

Dandy
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Re: RMD Strategy

Post by Dandy » Sun Sep 04, 2016 8:15 am

If you have Vanguard brokerage CDs the RMD service will not take RMDs from those assets (check to make sure). I assume you plan taking the first 10 years from your TIRA fixed income and putting the balance less withholding in your taxable account for use as needed. That will likely gradually raise your equity allocation even if the balance of the RMDs is put into taxable fixed income.

I like the idea of having 10 years fixed income in your TIRA. I think it is a better idea to take RMDs from your fixed income when equities perform poorly but some or all of your RMD from equities when they outperform. That would preserve some "safe" assets to be used when needed to re balance or to drawdown when equities underperform. Not as simple I know.

If not that, I would consider taking RMDs proportionately from your TIRA. Since I believe that will leave your CDs intact, your TIRA allocation will tend to have a more conservative glide path. That is pretty simple and you can decide what to do with maturing CDs as well as the RMDs (less withholding) that is sent to your taxable account.

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friar1610
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Re: Excellent Strategy!

Post by friar1610 » Sun Sep 04, 2016 10:56 am

Dontridetheindexdown wrote:That is an excellent strategy!

In my opinion ...Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX), which I consider to be an inflation-adjusted cash-equivalent, are 2 of the most overlooked, underappreciated funds in the Malvern universe.
I agree with you about VBIRX. The overwhelming majority of my bond funds are in tax-advantaged accounts. However, I keep a chunk of VBIRX in my equity-heavy taxable account as the "dry powder" for rebalancing and as a second level of emergency funds. Great fund for those purposes, IMO.
Friar1610

Topic Author
hoops777
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Re: RMD Strategy

Post by hoops777 » Sun Sep 04, 2016 12:56 pm

Thanks for the replies.
I am really trying to have it all in order the best I can because my wife really hates dealing with financial stuff.
K.I.S.S........so easy to say so difficult to do.

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