RMD Withdrawal Strategies

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SimpleMan68
Posts: 33
Joined: Tue Mar 10, 2020 10:19 am
Location: Michigan

RMD Withdrawal Strategies

Post by SimpleMan68 »

I have an inherited IRA (since 2012) and each year I withdraw the RMD (except this year). I am invested almost 100% in Wellington, with a small amount in a money market into which the dividends and capital gains are paid. I'm wondering what the optimal strategy might be: 1) Pay dividends and capital gains to the money market and then withdraw my RMD from that fund or 2) just sell the necessary shares of Wellington. Your thoughts are appreciated.
SimpleMan68 | We are what we repeatedly do. Excellence, then, is not an act, but a habit.
shess
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Joined: Wed May 17, 2017 12:02 am

Re: RMD Withdrawal Strategies

Post by shess »

SimpleMan68 wrote: Tue Dec 01, 2020 5:43 pm I have an inherited IRA (since 2012) and each year I withdraw the RMD (except this year). I am invested almost 100% in Wellington, with a small amount in a money market into which the dividends and capital gains are paid. I'm wondering what the optimal strategy might be: 1) Pay dividends and capital gains to the money market and then withdraw my RMD from that fund or 2) just sell the necessary shares of Wellington. Your thoughts are appreciated.
First you need to figure out why you're invested in Wellington. If it's a good reason, then just let dividends reinvest and sell shares as needed. There's really no particular reason to land in a money-market fund and withdraw from the money-market fund.

Personally, for a traditional IRA with RMD requirements, I'd look at my overall portfolio and see if I could push more of my fixed-income holdings into that IRA, if I have such holdings in other accounts. Since I'm paying marginal rates on that income AND being forced to realize that income, I don't really want my high-gain positions in there. See https://www.bogleheads.org/wiki/Tax-eff ... _placement
earlyout
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Re: RMD Withdrawal Strategies

Post by earlyout »

The income taxes are the same whether you take the RMD by selling shares or by taking it from the money market. An RMD is regular income. Since I prefer to keep my money invested I would turn on automatic reinvestment to minimize the amount in the money market fund and sell shares when I needed to take an RMD.
Topic Author
SimpleMan68
Posts: 33
Joined: Tue Mar 10, 2020 10:19 am
Location: Michigan

Re: RMD Withdrawal Strategies

Post by SimpleMan68 »

But if I am required to take a withdrawal each year, why would I reinvest and then sell shares? Why not pay the dividends and capital gains to a money market/short-term bond fund and then take my RMD from there? After all, I don't normally put money into stocks that I am going to need in the next year. A fund like Wellington is for a longer time horizon. Am I missing something?
SimpleMan68 | We are what we repeatedly do. Excellence, then, is not an act, but a habit.
jimkinny
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Re: RMD Withdrawal Strategies

Post by jimkinny »

SimpleMan68 wrote: Thu Dec 03, 2020 1:43 pm But if I am required to take a withdrawal each year, why would I reinvest and then sell shares? Why not pay the dividends and capital gains to a money market/short-term bond fund and then take my RMD from there? After all, I don't normally put money into stocks that I am going to need in the next year. A fund like Wellington is for a longer time horizon. Am I missing something?
This is fine. It may help a bit avoiding having to sell if the market is down a lot when you take your RMD. I don't think it matters much.
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