RMD start

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my name
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RMD start

Postby my name » Thu May 18, 2017 9:39 am

I am reviewing setting up automating my RMD with Vanguard. I begin next year. I am reviewing things like this should I become incapacitated, so automated is a good idea. It is a free service.

I am looking for any feedback on approach. I have a small traditional IRA and some Rollover IRAs. The RMD estimated amount for 2018 is about $35K including 401ks that I will probably rollover to Vanguard for ease of the RMD automation.

CHOICES for distribution: 1) percentages, 2) proportionally 3) equally across funds. Frequency: once a year, every 6 months, quarterly or monthly. Distribution start date (5th to 25th of month).

I am thinking of proportionally across funds, once a month. A dollar cost averaging. However most is in one value fund, Windsor, so perhaps I should just use that and leave the small Wellington and Wellesley funds alone? It also includes the settlement fund, which is zero, so I don't know the role of that in the RMD or otherwise.

WHERE DISTRIBUTION GOES: I won't spend it, the funds will be used for any long term care, beneficiary is charity, so I am thinking of the US TOTAL STOCK fund. I have a small amount there now, which I'll roll into the 500 Index fund so cost basis does not get confusing. However, it would be a good time perhaps to rebalance into a bond fund. I'm about 70% stock now. I know bond funds are not usually in the taxable accounts because of tax effect, I now have a large muni fund (NJ tax-exempt fund) that has done really, really well.

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SpringMan
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Re: RMD start

Postby SpringMan » Thu May 18, 2017 10:03 am

I don't think Vanguard will allow RMD setup until December of the year before. My spouse has to make a 2017 distribution and I (authorized) was not able to set it up until Dec 2016. My RMD starts in 2018 and plan on contacting Vanguard in December 2017. We will be taking the RMD all in December. Our tIRAs are 100% bond funds. The distributions will go to our joint taxable account's settlement account. From there we can ACH to our bank or reinvest in Vanguard funds.
Best Wishes, SpringMan

Dandy
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Re: RMD start

Postby Dandy » Thu May 18, 2017 10:08 am

I favor proportionately which kind of keeps your allocation stable. By the way I don't think something like brokerage CDs and maybe individual stocks/bonds are included in the amounts deducted i.e. VG will take all the RMD out of mutual funds vs trying to sell Brokerage CDs.

I would lean to quarterly RMD payments -- monthly may be a bit too much activity especially since you don't need to use them for personal expenses.

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friar1610
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Re: RMD start

Postby friar1610 » Thu May 18, 2017 10:57 am

My wife and I have two funds each (the same ones) in our IRAs. I'm in my 2nd year of RMDs; she's in her first. Like you, we don't need the money for living expenses; we just reinvest it in taxable. We are set up with VG's service so it runs on auto-pilot. The first year I took proportional quarterly distros. Now we each take them (proportionally) semi-annually but have them staggered so we get one payment each quarter between the two of us. I've seen a lot of posts in which people say they wait until December and just take one big distribution at the end of the year so the money has the whole year to grow. My thinking is that it could also lose, so this reverse DCA seems to make sense to me. Although I've had no occasion to do it, I think you could override the auto distribution and ask VG to take it out of just one fund if, say, the other one had taken a big hit just prior to your distribution. I would agree that monthly distros are a bit too frequent (unless they are needed for living expenses).
Friar1610

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CABob
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Re: RMD start

Postby CABob » Thu May 18, 2017 12:26 pm

my name wrote:I am looking for any feedback on approach. I have a small traditional IRA and some Rollover IRAs. The RMD estimated amount for 2018 is about $35K including 401ks that I will probably rollover to Vanguard for ease of the RMD automation. Don't forget that RMD from IRA is separate from 401k. The RMD amount needs to be calculated on the total assets in IRAs and then each 401k individually. Rolling over the 401k to IRA might be a good think to accomplish first.

CHOICES for distribution: 1) percentages, 2) proportionally 3) equally across funds. Frequency: once a year, every 6 months, quarterly or monthly. Distribution start date (5th to 25th of month).I have used the proportional withdrawals mostly thinking that this would be the least disruption of your asset allocation within the retirement accounts however if you plan on putting the money into a taxable account or are intentionally adjusting your AA this might change.

I am thinking of proportionally across funds, once a month. If you don't need the money for expenses I would thing fewer distributions would be preferred (1 or 2 per year) Don't forget that you can and probably should have income tax withheld from the withdrawal. This is one reason that many suggest the withdrawal be made late in the year when you may have a better idea of the tax liability you are apt to have.
Bob

Alan S.
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Re: RMD start

Postby Alan S. » Thu May 18, 2017 1:54 pm

Remember, if the 401k happens to hold appreciated employer shares with a low cost basis, NUA may be a viable consideration.
If you keep the 401k and defer the IRA rollover until early in the year after your 70.5 year (just prior to the RBD), and then do your LSD, the company shares that you would distribute anyway will cover both your first and second RMD distribution year RMDs.

If none of this applies in your case, then you should probably consider doing the 401k rollover in your 69.5 year (this year) when it can be done without RMD considerations. Then you will only have IRAs once RMDs begin the following year. Also, this year might be the last year to warrant doing a modest Roth conversion because you will not have the RMD income to drive up your marginal rate.

Finally, the first RMD distribution year has the one time flexibility that you can take out any portion of the RMD you wish (0-100%) and defer the remainder to 4/1 of the following year. While deferring is not beneficial for most people, some people can save on their total tax bill over the 2 years by crunching the numbers to see if perhaps some of the first RMD should be deferred. I saved about $600 doing that, but it takes some work to crunch the numbers and most people would probably not want to undertake that project.

If you go the withholding route, you can hold your tax money longer and eliminate quarterly estimates.

my name
Posts: 389
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Location: NJ

Re: RMD start

Postby my name » Fri May 19, 2017 7:10 pm

SpringMan wrote:I don't think Vanguard will allow RMD setup until December of the year before.

If you are age 69 1/2 you can set-up the auto RMD. Thanks for our thoughts.

my name
Posts: 389
Joined: Sun Dec 23, 2007 4:28 pm
Location: NJ

Re: RMD start

Postby my name » Fri May 19, 2017 7:20 pm

Thanks everyone for all the great ideas. Lots to think about. I will play with turbo tax and maybe hold off on the 401k roll over so I can do some roth play this year. I'll see what I can do to possibly delay on the first year rmd to see if a roth thing next year is the better play.


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