Should I Take MY RMD Now Or Wait Until Later In The Year?

[pubman]

Normally, it is best to take one's Required Minimum Distribution towards the end of the year to allow the investments to grow. I have only Vanguard bond funds (Intermediate, Total, and International) in my IRA. With rising interest rates on new bonds I am think of taking my RMD now rather than waiting. Any thoughts on this would be appreciated.

[retiredjg]

I can't think of any reason to wait or not wait. You have to take the same amount no matter when you take it, right? If you turn around and invest the money in a taxable account, you have not lost or gained anything (other than the tax ).

If there is some benefit to waiting or not waiting, I'd like to learn about it too.

[BL]

One advantage is if you die during the year, your heirs don't have to do it.

Bonds these days pretty much negate any expected increase by waiting, compared to expecting an increase in equities on average.

Sounds like doing it when convenient is a good choice.

[JMacDonald]

I have been taking my RMD the first week of January for the past two years since I was required to take it. I preferred doing to early as it is done, and I don't get into a panic like what happened to another poster here at the end of last year.

[TwstdSista]

My plan, when we get there, is to take them at the beginning of the year as well. Keep it simple. Plus, we are really good at budgeting. We could easily budget the funds out for the entire year.

[Nowizard]

Individual circumstances may determine the choice. For example, those who are taking MRD's but do not need the money immediately may have a different opinion from those who have set budgets including spending the MRD. We take ours early, using it as part of a rebalancing strategy, simplification of our portfolio (If making changes with that in mind), etc. When there is excess over what we plan to spend, we invest in the market, moving those proceeds from tax deferred to taxable. Basically, individual circumstances suggest that when to ideally take an MRD may differ one year from another.

Tim

[Ron]

This is the first year for RMD's for my wife/me. Since we did well with our tax-deferred investments last year, we decided to "harvest" our gains and satisfy our respective RMD's on January 2nd.

Half the RMD was used to pay taxes on the withdrawal, along with the forecast FIT due on our income for the rest of the year from pensions, SS, and an SPIA. The remainder went into short term savings. Since this is our first rodeo, we're not sure of how we're going to use the excess funds (either save, spend, or invest). Assuming we continue to live/withdraw, we'll get into a set pattern as years go by.

If we didn't have such a good year last year, there would be more of a question of if we should wait or keep it in the market and go for some additional gains. Within this short period of time (less than three months), it looks like our decision was the right one, for us. And if the market really turns around by the end of the year, we're not going to worry about it. We already made significant gains last year and based our decision on that fact.

FWIW,

- Ron

[BigFoot48]

I've been doing my widowed mother-in-law's for the past 8 years in December, which is what my FIL did. The advantage I see is that the tax withholding amount for the year can be included in it, delaying that expenditure as late as possible and allowing earnings to made on that amount during the year. Of course, after doing it for many years, that delay may become inconsequential in the scheme of things, as it's every year, one way or another (or every month, etc.).

My RMD starts next year and I plan to use December also, however at some point plan to switch to January, one less thing for the future widowed DW to be concerned about.

[minesweep]

I’m in a same situation as you (I have 100% of TIRA in bond funds). I take my RMD in mid-December. I don’t worry about my heirs having to take the RMD if I die during the year (as someone has noted above) because I have my RMD automatically set up at Vanguard. In addition, I follow the IRS Safe Harbor Rule and make one tax withholding from my RMD to satisfy my entire year’s tax liability (for all income sources). I keep that tax money in my possession for a longer period of time and I don’t have to do quarterly tax payments throughout the year.

[BL]

I’m in a same situation as you (I have 100% of TIRA in bond funds). I take my RMD in mid-December. I don’t worry about my heirs having to take the RMD if I die during the year (as someone has noted above) because I have my RMD automatically set up at Vanguard. In addition, I follow the IRS Safe Harbor Rule and make one tax withholding from my RMD to satisfy my entire year’s tax liability (for all income sources). I keep that tax money in my possession for a longer period of time and I don’t have to do quarterly tax payments throughout the year.

Have you asked what they would do if you died before that date? I rather doubt they would do an RMD in that case, unless it was in conjunction with renaming the account. At least it should be covered for illness.

[mhalley]

One of the biggest advantages of waiting is to have the right amount of taxes withheld so you don’t have to pay estimated taxes.

[SpringMan]

I am taking my RMDs in quarterly installments and having tax withholding deducted from each. I was surprised by the way VBS handles state of MI. withholding. I put in 3% in the field and executed the transaction. They took out 4.5%. Why doesn't VBS validate the field upon data entry if it is not acceptable? I have never filed estimated taxes and that has never been a problem. I don't worry about missing out on earnings on the tax deferred account by waiting as I invest what is left after taxes in a taxable account.

[John151]

I think it depends on how your tax-advantaged account is invested and on what you want to do with the proceeds. Mine’s in a stable value fund paying three percent, and I’m planning to invest my RMD in a tax-exempt bond fund. The former pays more than the latter, especially after taxes are withheld from my RMD, so I’ll take my RMD towards the end of the year.

[Watty]

One advantage is if you die during the year, your heirs don't have to do it.

+1

And it will actually get done. If you, or a spouse, are in the hospital next December you might forget.

[sport]

There is one important consideration not mentioned so far. If you want to make any QCDs and have them count towards your RMD, you do not want to take all of the RMD early in the year. If you make a QCD after you have completed the RMD, the QCD will not be taxable, but you do not get to reduce the taxability of your RMD for that year. If you make any charitable donations and are older than 70 ¹/₂ then it is an excellent tax break to use QCDs. QCDs reduce the taxes on your RMD, they may reduce the taxability of your Social Security benefit, and they may reduce your state income taxes.

I make my QCDs throughout the year as they come up. I then take the balance of the RMD in late November. If you are concerned about your IRA holdings falling in value during the year, due to interest rate increases or stock market declines, you can always have a short term bond fund or a money market fund in your IRA to hold your RMD during the year until you are ready to take it.

[GerryL]

I turn 70.5 early next year. My plan, which I recently discussed with my Flagship rep, is to do my QCDs in the first half the year and then take the rest of the RMD in the second half of the year, when I have a better view of how much withholding is needed to cover taxes for all of my income (mostly SS). We'll see how this goes and repeat each year if it works as anticipated. Since I am planning to reinvest part of the RMD, I'm not really worried about missing out on potential growth.

[RadAudit]

I take the RMDs in December. That way, I have the first part of the year to take QCDs according to the various charities' campaign schedules - April seems to be favored by some, others like later in the year.

[pubman]

There is one important consideration not mentioned so far. If you want to make any QCDs and have them count towards your RMD, you do not want to take all of the RMD early in the year. If you make a QCD after you have completed the RMD, the QCD will not be taxable, but you do not get to reduce the taxability of your RMD for that year. If you make any charitable donations and are older than 70 ¹/₂ then it is an excellent tax break to use QCDs. QCDs reduce the taxes on your RMD, they may reduce the taxability of your Social Security benefit, and they may reduce your state income taxes.

I make my QCDs throughout the year as they come up. I then take the balance of the RMD in late November. If you are concerned about your IRA holdings falling in value during the year, due to interest rate increases or stock market declines, you can always have a short term bond fund or a money market fund in your IRA to hold your RMD during the year until you are ready to take it.

On the subject of QCD's, even for very small charitable contributions, most who are eligible to do so should take them out of their RMD since in 2018 with the new tax bill, many wlll now be taking the K$24 standard deduction (for married filing jointly) instead of itemizing. I bring this up because Vanguard does not have a limit on how many QCD's or how small they are for them to process. BTW, another benefit of QCD's from your RMD is that by lowering your AGI it can also lower your Medicare premiums.

[Big Dog]

I also take mine in late Dec. I have it setup so Vanguard automatically processes it.

Wrt questions about about dyeing first: Vanguard is really good with the Transfer on Death (beneficiary) instructions and will tell the new owner if the RMD has already been taken, or at least they did when my mom died.

[Steelersfan]

First year taking an RMD. No QCD, at least this year. No plan. I just did it last week.

[bighatnohorse]

End of year because it's in a mutual fund based variable annuity that can ratchet up with the market but not down.
Thus, the answer to your question may be "case specific".