70 yr old about to take 1st RMD

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Army
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Joined: Tue Jul 10, 2018 10:40 pm

70 yr old about to take 1st RMD

Post by Army » Wed Jul 11, 2018 4:52 pm

Will try to make question as simple as possible and not take much of someone's time. Turning 70 in Aug 2018 and 1st RMD withdrawal in yr 2019. IRA is with Fidelity Private Client Group, I have managed my portfolio since the beginning and plan to continue. I have various ETF's Stocks, and Bonds, in portfolio along with a Cash Reserve Mutual Fund (FDRXX). I have run RMD calculator and found my 1st RMD will be little over 48K and as you all know increase each yr thereafter. For this great gift that's about to take place (lol) I've parked about 3 yrs of $$ into FDRXX to cover RMD without disrupting the rest of my portfolio so hopefully it will grow. That is my question, can I take my RMD from anywhere within my portfolio. Another question is because I won't need all of RMD every year, what would be tax efficient ways such as ETF;s Stocks, etc to place money into taxable acct and is there a certain amount that can only be put in one per year. I'm street smart, but not book smart. Thanks for your time.

Alan S.
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Location: Prescott, AZ

Re: 70 yr old about to take 1st RMD

Post by Alan S. » Wed Jul 11, 2018 7:07 pm

Army wrote:
Wed Jul 11, 2018 4:52 pm
Will try to make question as simple as possible and not take much of someone's time. Turning 70 in Aug 2018 and 1st RMD withdrawal in yr 2019. IRA is with Fidelity Private Client Group, I have managed my portfolio since the beginning and plan to continue. I have various ETF's Stocks, and Bonds, in portfolio along with a Cash Reserve Mutual Fund (FDRXX). I have run RMD calculator and found my 1st RMD will be little over 48K and as you all know increase each yr thereafter. For this great gift that's about to take place (lol) I've parked about 3 yrs of $$ into FDRXX to cover RMD without disrupting the rest of my portfolio so hopefully it will grow. That is my question, can I take my RMD from anywhere within my portfolio. Another question is because I won't need all of RMD every year, what would be tax efficient ways such as ETF;s Stocks, etc to place money into taxable acct and is there a certain amount that can only be put in one per year. I'm street smart, but not book smart. Thanks for your time.

If you have a taxable brokerage account at Fidelity, you could transfer the portion of your RMD that you will essentially save in kind. That means you do NOT have to maintain much in FDRXX to complete your RMD, certainly not 150k. Since securities change value in real time, and if you do not want to exceed your RMD amount, you would first transfer the number of shares you calculate would add up to around 97% of your RMD and transfer them in kind to the taxable brokerage account. When that settles check your statement to see the dollar value of that transfer. Then top off the balance of your RMD by doing another transfer of FDRXX to the brokerage. With a taxable brokerage with check writing you do not need to involve your checking account in this. Note that there are several other ways to approach this as well depending on your preferences.


Your first RMD distribution year is 2019, but for that first year only you also have to option to defer all or part of that RMD to as late as 4/1/2020. Typically taking 2 RMDs in 2020 will cost you extra, however in some cases due to the way your SS income is taxed deferring all or part of that first RMD will save you money in total for the two years. The challenge comes in crunching those numbers. Of course, your estimate of 48k for your 2019 RMD assumes a particular 12/31/2018 balance. If your balance is 10% less for example, then your RMD is also 10% less.


You can do the RMD as a single distribution, monthly, or any combination. The only thing that matters is that the 1099R at least equals your RMD amount, subject to that one time flexibility for your 2019 RMD. And if you make any charitable contributions, do consider a QCD instead of writing a check from your checking account. A QCD has an advantage over itemizing because it is not in your taxable income to begin with. You must be 70.5 to the day to do a QCD, they are limited to 100k per year, and timing is critical. Generally, you should do your QCD as your first distribution, because if you take an RMD distribution prior to the QCD, the QCD cannot offset the taxes on the earlier distributions.

As you can see, your first RMD year is by far the most complex because you have not done RMDs or QCDs before, and the first year deferral option is a one time option. You also will need to determine how you want to cover your tax bill for the RMD. While you can pay quarterly estimates, many people use withholding from the RMD because it is more flexible and works regardless of the date you take your RMD.

sport
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Location: Cleveland, OH

Re: 70 yr old about to take 1st RMD

Post by sport » Wed Jul 11, 2018 7:58 pm

Alan S. wrote:
Wed Jul 11, 2018 7:07 pm
Generally, you should do your QCD as your first distribution, because if you take an RMD distribution prior to the QCD, the QCD cannot offset the taxes on the earlier distributions.
Alan,
My understanding is that you can make a QCD for any part of your RMD and get the tax benefits. For example, if my RMD total is 10K, I can take a 2K RMD, make a 1K QCD, take a 5K RMD, make a 1K QCD, and then a 1K RMD. You can also make QCDs after your RMD is complete up to a total of 100K. However, these will not reduce your current year taxes. They will, however, lower your 12/31 balance and thus reduce future RMDs.

Alan S.
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Re: 70 yr old about to take 1st RMD

Post by Alan S. » Wed Jul 11, 2018 8:07 pm

sport wrote:
Wed Jul 11, 2018 7:58 pm
Alan S. wrote:
Wed Jul 11, 2018 7:07 pm
Generally, you should do your QCD as your first distribution, because if you take an RMD distribution prior to the QCD, the QCD cannot offset the taxes on the earlier distributions.
Alan,
My understanding is that you can make a QCD for any part of your RMD and get the tax benefits. For example, if my RMD total is 10K, I can take a 2K RMD, make a 1K QCD, take a 5K RMD, make a 1K QCD, and then a 1K RMD. You can also make QCDs after your RMD is complete up to a total of 100K. However, these will not reduce your current year taxes. They will, however, lower your 12/31 balance and thus reduce future RMDs.
Yes, that is correct. There are many permutations of QCD distributions. The quote was intended to keep it simple since you cannot go wrong if your first distribution is the QCD. Obviously, there are many other timing possibilities that will also work if you know what you are doing.

delamer
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Re: 70 yr old about to take 1st RMD

Post by delamer » Wed Jul 11, 2018 8:41 pm

as you all know increase each yr thereafter.
While it is true that the portion of your assets subject to the RMD will increase each year, it is not a given that the dollar amount will go up.

If your account balance declines due to stock/bond prices falling, you may need to withdraw fewer dollars even as the percentage of the required withdrawal rises.

Army
Posts: 2
Joined: Tue Jul 10, 2018 10:40 pm

Re: 70 yr old about to take 1st RMD

Post by Army » Wed Jul 11, 2018 8:49 pm

Thanks for info "Alan S". I'd contemplated waiting until 2020 to take the 1st, but by doubling up and end of year balance continues where 1st RMD is 48K and 2nd over 50k plus my SS yr end amount, it would put me over 105k and cause me to pay more medicare thus reducing my monthly SS for following yr which eventually will happen but would rather it happen then than now.

I haven't set up a taxable account with Fidelity yet. Plan on doing between Aug 2018 and Dec. You speak of transferring in kind from (FDRXX) to taxable account. First to make it simple and not fooling around and miss quarterly tax payment deadlines, I plan on having Fidelity hold out Federal & State taxes from the amount of the RMD which if I'm correct, all the IRS is looking for is a certain dollar amount to exit the IRA (aware of the stipulations). So lets assume 48K is 1st RMD and I have Fidelity hold 20% of the 48k for taxes. then I'd get Fidelity to transfer in kind 38,400 to taxable account.

I'm very aware of the end of the year portfolio up and down due to market conditions. My post is based on recent RMD calculation if market stays and my YTD doesnt change

sport
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Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: 70 yr old about to take 1st RMD

Post by sport » Wed Jul 11, 2018 9:04 pm

Alan S. wrote:
Wed Jul 11, 2018 7:07 pm
That means you do NOT have to maintain much in FDRXX to complete your RMD, certainly not 150k. Since securities change value in real time, and if you do not want to exceed your RMD amount, you would first transfer the number of shares you calculate would add up to around 97% of your RMD and transfer them in kind to the taxable brokerage account.
Alan,
Is there much advantage to making the transfer "in kind" rather than just selling in the IRA and buying in taxable. I realize that price can change in between those two transactions, but it is just as likely to go down as up. It would seem to be simpler to sell what needs to be sold, and then buy with whatever is left after withholding.

MJS
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Joined: Sat Aug 05, 2017 10:55 pm

Re: 70 yr old about to take 1st RMD

Post by MJS » Wed Jul 11, 2018 11:31 pm

Will you be taking RMDs solely from Traditional IRAs? No 403b, 401k or 457b?

If you have any other must-RMD accounts, the IRS rules are a bit challenging https://www.irs.gov/retirement-plans/re ... ibutions#5
Can an account owner just take a RMD from one account instead of separately from each account?

An IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from one or more of the IRAs. Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract that he or she owns, but can take the total amount from one or more of the 403(b) contracts.

However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each of those plan accounts.

Alan S.
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Location: Prescott, AZ

Re: 70 yr old about to take 1st RMD

Post by Alan S. » Thu Jul 12, 2018 12:11 pm

sport wrote:
Wed Jul 11, 2018 9:04 pm
Alan S. wrote:
Wed Jul 11, 2018 7:07 pm
That means you do NOT have to maintain much in FDRXX to complete your RMD, certainly not 150k. Since securities change value in real time, and if you do not want to exceed your RMD amount, you would first transfer the number of shares you calculate would add up to around 97% of your RMD and transfer them in kind to the taxable brokerage account.
Alan,
Is there much advantage to making the transfer "in kind" rather than just selling in the IRA and buying in taxable. I realize that price can change in between those two transactions, but it is just as likely to go down as up. It would seem to be simpler to sell what needs to be sold, and then buy with whatever is left after withholding.

Yes, distribution of cash is much simpler and makes sense now that commissions are very low. Of course, if enough individual securities are involved for which you pay a $5 or more sell commission and re purchase commission in taxable, there are some who would still transfer in kind for those small savings. And their market exposure would be continuous. And you may need to sell a portion anyway if you elect withholding or QCDs.

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dodecahedron
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Re: 70 yr old about to take 1st RMD

Post by dodecahedron » Thu Jul 12, 2018 12:25 pm

Alan S. wrote:
Wed Jul 11, 2018 8:07 pm
sport wrote:
Wed Jul 11, 2018 7:58 pm
Alan S. wrote:
Wed Jul 11, 2018 7:07 pm
Generally, you should do your QCD as your first distribution, because if you take an RMD distribution prior to the QCD, the QCD cannot offset the taxes on the earlier distributions.
Alan,
My understanding is that you can make a QCD for any part of your RMD and get the tax benefits. For example, if my RMD total is 10K, I can take a 2K RMD, make a 1K QCD, take a 5K RMD, make a 1K QCD, and then a 1K RMD. You can also make QCDs after your RMD is complete up to a total of 100K. However, these will not reduce your current year taxes. They will, however, lower your 12/31 balance and thus reduce future RMDs.
Yes, that is correct. There are many permutations of QCD distributions. The quote was intended to keep it simple since you cannot go wrong if your first distribution is the QCD.
One important caution! The OP said he will turn 70 in August 2018. This means that he will not be 70 1/2 until after his half-birthday in February 2019. Any distribution he takes starting in January 2019 will count as part of his RMD but in order for a charitable distribution to count as a QCD, he needs to wait until after his half birthday in February 2019.

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