What does your gut tell you; RMD now or in December?

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teacher
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What does your gut tell you; RMD now or in December?

Post by teacher » Thu Nov 01, 2018 1:49 pm

I am a big advocate of not timing the market, so we decided to wait to do our first RMDs until the end of the year to allow the possibility of growth and continue tax-deferment as long as possible rather than sell when we think the market is at its peak.

Sixty percent of our portfolio is in the RMD crosshairs. The 401k asset allocation is 65/35. We plan to reinvest the residual in a taxable account.

So, we waited as per plan and it’s November, and the market is haywire to say the least. Even though my question has no definitive answer, if you were in my shoes, what would you do, sell now or wait until December as originally planned?

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Re: What does your gut tell you; RMD now or in December?

Post by delamer » Thu Nov 01, 2018 2:14 pm

Split it between now and December?

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Re: What does your gut tell you; RMD now or in December?

Post by The Wizard » Thu Nov 01, 2018 2:20 pm

I'm planning on splitting my RMD into twelve equal amounts taken the 20th of each month starting in January 2020, the year I turn 70.5.

This mirrors what I've been doing since I retired be in 2013: equal monthly withdrawals from tax deferred...
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Re: What does your gut tell you; RMD now or in December?

Post by Charlieville » Thu Nov 01, 2018 2:26 pm

Don't take your RMD late in the year--if you die then your beneficiary has to scramble to take the RMD in a very small window. As you age simplicity and reducing complexity are more important than maximizing returns in my view.

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Re: What does your gut tell you; RMD now or in December?

Post by mw1739 » Thu Nov 01, 2018 2:27 pm

I wouldn't change anything due to some recent market volatility. The market might be down 2% one day and up 3% the next, there's no point in trying to time the market.

My wife has an inherited IRA she has to take an RMD from annually. We have it setup to automatically occur on December 1st each year. We have no plans to change that based on the recent volatility, but to be fair, we also don't need those funds to live on either.

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Re: What does your gut tell you; RMD now or in December?

Post by onthecusp » Thu Nov 01, 2018 2:27 pm

Stay the course!

You realize that your current question could be rephrased as:
"Do I now time the market in the short term? Sell now before it goes down more or hold for a month so it can recover?"

Setting a course is an interesting question that I'm going to be faced with soon. In edit, I realized that I won't be starting RMDs soon, but I hope to start withdrawals of some sort soon. I have been thinking about monthly distributions with a top off at the end or leaving the end one for my taxable account. That way I will likely have less sellers remorse when the market is down.

I was watching CNBC the other day for entertainment (bad choice) and was struck by a comment that the market was going to be influenced by something they described as "Retirement Account Rebalancing". Now I don't know if that refers to target date funds, or something you and I do at the end of the year. What struck me was that if it is named on TV then it almost certainly is something that traders try and front run. RMDs may be the same thing. Seems another argument for spreading these activities out over the year.

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Re: What does your gut tell you; RMD now or in December?

Post by MJW » Thu Nov 01, 2018 2:30 pm

I'm not sure my gut would be a reliable influence for that type of decision.

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Re: What does your gut tell you; RMD now or in December?

Post by jebmke » Thu Nov 01, 2018 2:33 pm

Charlieville wrote:
Thu Nov 01, 2018 2:26 pm
Don't take your RMD late in the year--if you die then your beneficiary has to scramble to take the RMD in a very small window. As you age simplicity and reducing complexity are more important than maximizing returns in my view.
True but toward the end of the year makes it easier to use the RMD to manage withholding and avoid timing issues with estimated tax payments. I'm not there yet but if it were me, I'd target late November - by then you can get pretty close on a pro-forma tax return.
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Re: What does your gut tell you; RMD now or in December?

Post by sport » Thu Nov 01, 2018 2:35 pm

I have made QCDs throughout the year. Today, I withdrew the balance of the RMD. I took the money from a bond fund, so the status of the stock market is not a factor. My portfolio is smaller by the amount of tax withheld. I used last year's taxes to determine a safe harbor withholding amount.

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Re: What does your gut tell you; RMD now or in December?

Post by Doom&Gloom » Thu Nov 01, 2018 2:40 pm

teacher wrote:
Thu Nov 01, 2018 1:49 pm
I am a big advocate of not timing the market, so we decided to wait to do our first RMDs until the end of the year to allow the possibility of growth and continue tax-deferment as long as possible rather than sell when we think the market is at its peak.

Sixty percent of our portfolio is in the RMD crosshairs. The 401k asset allocation is 65/35. We plan to reinvest the residual in a taxable account.

So, we waited as per plan and it’s November, and the market is haywire to say the least. Even though my question has no definitive answer, if you were in my shoes, what would you do, sell now or wait until December as originally planned?
The parts I bolded seem contradictory :twisted:
If I were you, I would stick to my plan that made sense when you made it. If it didn't, change the plan to one that you can stick to from here on.

If you plan to reinvest the bulk of your withdrawal similarly in a taxable account, I doubt that it makes a big difference.

Personally, I take my RMDs in Jan & Feb for the reasons that others have delineated in previous threads here.

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Re: What does your gut tell you; RMD now or in December?

Post by whonoze » Thu Nov 01, 2018 2:42 pm

Remember to make your QCD (Qualified Charitable Distributions) before you take the rest of your RMD. Gifts made directly from an IRA to a charity before your RMD is complete are not taxed as income. Vanguard makes it very easy to gift from your retirement account.
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Re: What does your gut tell you; RMD now or in December?

Post by dkturner » Thu Nov 01, 2018 3:23 pm

jebmke wrote:
Thu Nov 01, 2018 2:33 pm
Charlieville wrote:
Thu Nov 01, 2018 2:26 pm
Don't take your RMD late in the year--if you die then your beneficiary has to scramble to take the RMD in a very small window. As you age simplicity and reducing complexity are more important than maximizing returns in my view.
True but toward the end of the year makes it easier to use the RMD to manage withholding and avoid timing issues with estimated tax payments. I'm not there yet but if it were me, I'd target late November - by then you can get pretty close on a pro-forma tax return.
That’s what we do. We have set our RMDs to automatically come out of our IRAs on December 1 and go into our joint money market checking account, after having our IRA custodian pay our federal income tax liability (110% of last years taxes). The money stays invested for 11/12 of the year, which should work to our advantage most of the time. If something happens to one, or both, of us the money will be withdrawn from our IRAs prior to year end. It gives us complete peace of mind.

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Re: What does your gut tell you; RMD now or in December?

Post by RadAudit » Thu Nov 01, 2018 3:36 pm

Follow your plan.

I take my RMDs in December from the bond side of the portfolio. Additionally, I'll rebalance the portfolio if and when it hits its rebalance bands, if I can sell stock funds at a profit.
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Re: What does your gut tell you; RMD now or in December?

Post by teacher » Thu Nov 01, 2018 3:39 pm

Wizard said:
I'm planning on splitting my RMD into twelve equal amounts taken the 20th of each month starting in January 2020, the year I turn 70.5.
And delemar suggested:
Split it between now and December?
This sound like dollar-cost averaging in reverse. Brilliant. Hopefully, there are no tax consequences. Since the 401k is at Fidelity, I checked to see if they can do this. The answer was they can spread out RMD withdrawals in equal parts over the 12 month span.

And here's something else I learned... at Fidelity, unless they hear from us, they will automatically remove the RMD from the 401k November 29th and send the distribution to our credit union. They will follow up with a notification they have done so. That reduces the risk of forgetting due to infirmities of old age or burdening heirs.

Thanks to everyone for your input. As always, I got new insights and a path forward.

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Re: What does your gut tell you; RMD now or in December?

Post by Dandy » Thu Nov 01, 2018 3:52 pm

You should pick a date and automate the RMD process. That will avoid the yearly issue of when. I would opt for some time in early/mid November. Don't like to get financial matters done during the holiday/end of year rush if it can be avoided.

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Re: What does your gut tell you; RMD now or in December?

Post by togb » Thu Nov 01, 2018 9:41 pm

I don't have RMDs yet, but I always assumed RMDs would come from cash or things close to cash. Its the part of the portfolio that should have very minimal fluctuations. So timing really doesn't matter.

Am I missing something?

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Re: What does your gut tell you; RMD now or in December?

Post by Dandy » Fri Nov 02, 2018 4:33 am

togb wrote:
Thu Nov 01, 2018 9:41 pm
I don't have RMDs yet, but I always assumed RMDs would come from cash or things close to cash. Its the part of the portfolio that should have very minimal fluctuations. So timing really doesn't matter.

Am I missing something?
If you continue to take from cash or close to cash you might gradually get a rising equity allocation. My plan is to take it proportionately. If equities have a really bad year then I might take it all from cash or close to cash. So, just keep an eye on how much equity exposure makes sense for you.

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Re: What does your gut tell you; RMD now or in December?

Post by motorcyclesarecool » Fri Nov 02, 2018 5:00 am

The arguments in favor of lump sum investments at the beginning of the year in accumulation would tend to argue in favor of taking RMDs as a lump sum at the end of the year in decumulation.(Time in the market, dividend reinvestment, etc.) It seems reasonable that if it could be automated to take place the last business day of the year without fail, that would work out over time.

Reverse DCA seems to be a bad way to maximize time in the market.
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Re: What does your gut tell you; RMD now or in December?

Post by billfromct » Fri Nov 02, 2018 5:17 am

I will be taking my 2019 RMD from the ST Bond Fund in my rollover IRA in January every year in order to get it out of the way & (as others have mentioned) not leave it to my beneficiaries to do (I'm sure checking to see if my RMD was taken will never occur to them even though I have detailed instructions for them).

I will then rebalance my IRA to my 60%/40% IRA allocation depending on stock market conditions. I will not rebalance in a down stock market. IRA fixed income allocation amounts to 10-12 years of RMDs so I will be able to ride out any correction/bear market without needing to sell stocks to fund my RMD in a down market.

Vanguard will transfer my RMD to my MM fund from which I will transfer to my credit union checking account (as needed) on a monthly basis.

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Re: What does your gut tell you; RMD now or in December?

Post by ivk5 » Fri Nov 02, 2018 5:23 am

motorcyclesarecool wrote:
Fri Nov 02, 2018 5:00 am
The arguments in favor of lump sum investments at the beginning of the year in accumulation would tend to argue in favor of taking RMDs as a lump sum at the end of the year in decumulation.
Agree with analogy but perhaps not conclusion. Lump sum withdrawal as late as possible likely works out best over time for those who can stick with it. DCA (periodic withdrawals) works well for people who won’t stick to lump sum. OP seems to be a good candidate for DCA for this reason.
teacher wrote:
Thu Nov 01, 2018 1:49 pm
I am a big advocate of not timing the market, so we decided to wait to do our first RMDs until the end of the year to allow the possibility of growth and continue tax-deferment as long as possible rather than sell when we think the market is at its peak.

...

So, we waited as per plan and it’s November, and the market is haywire to say the least. Even though my question has no definitive answer, if you were in my shoes, what would you do, sell now or wait until December as originally planned?
Making/changing decisions based on what (you think) the market is doing is market timing by definition.

Whether or not it is a mortal sin is debated ad naseum. But first and foremost you have to be honest with yourself so you can identify the strategy that’s best suited to your behavioral biases.

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Re: What does your gut tell you; RMD now or in December?

Post by AtlasShrugged? » Fri Nov 02, 2018 6:29 am

December
“If you don't know, the thing to do is not to get scared, but to learn.”

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Re: What does your gut tell you; RMD now or in December?

Post by teacher » Fri Nov 02, 2018 6:34 am

billfromct wrote:
I will be taking my 2019 RMD from the ST Bond Fund in my rollover IRA ….I will then rebalance my IRA to my 60%/40% IRA allocation depending on stock market conditions. I will not rebalance in a down stock market….I will be able to ride out any correction/bear market without needing to sell stocks to fund my RMD in a down market.
Vanguard will transfer my RMD to my MM fund from which I will transfer to my credit union checking account (as needed) on a monthly basis.
This comment is very intriguing to me, but I don’t think it would work in our case because the Fidelity 401k is through AT&T. They require RMD withdrawals be withdrawn in equal percentage from each fund in the 401k. In this case, it will be 50% from a Total Stock Market type fund and 50% from a Stable Value fund. (The asset allocation in the 401k is 65/35). I am not coming up with a solution to make it work for us. Thoughts?

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Re: What does your gut tell you; RMD now or in December?

Post by Nowizard » Fri Nov 02, 2018 7:51 am

Unless you are using RMD's to rebalance, we have thought it is the same argument as whether to invest a sum in a lump or portions over time. Most feel it makes no difference over the long term, though the "long term" is shorter after you reach 70.5 years.

Tim

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Re: What does your gut tell you; RMD now or in December?

Post by Nowizard » Fri Nov 02, 2018 7:53 am

Are you sure you must draw from each fund rather than from the total of each retirement account which may contain several funds?

Tim

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Re: What does your gut tell you; RMD now or in December?

Post by teacher » Fri Nov 02, 2018 8:01 am

Nowizard Worte:
Are you sure you must draw from each fund rather than from the total of each retirement account which may contain several funds?
I am absolutely sure. I have spoken to two Fidelity representatives about this AT&T requirement. They said AT&T does not allow choosing a fund from which to take money to satisfy RMDs. Instead, they require equal percentage deduction from both funds. They could not tell me the reason for the rule. Getting the answer from AT&T would be like finding a needle in a haystack.

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Re: What does your gut tell you; RMD now or in December?

Post by JW-Retired » Fri Nov 02, 2018 8:36 am

teacher wrote:
Fri Nov 02, 2018 8:01 am
Nowizard Worte:
Are you sure you must draw from each fund rather than from the total of each retirement account which may contain several funds?
I am absolutely sure. I have spoken to two Fidelity representatives about this AT&T requirement. They said AT&T does not allow choosing a fund from which to take money to satisfy RMDs. Instead, they require equal percentage deduction from both funds. They could not tell me the reason for the rule. Getting the answer from AT&T would be like finding a needle in a haystack.
You surely must be allowed to make changes in your funds in some way? Couldn't you take the RMD like they want it, and then a short time later reallocate your account so it's as if the RMD was done your way.
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Re: What does your gut tell you; RMD now or in December?

Post by Highfeehater » Fri Nov 02, 2018 9:02 am

I think having to take RMDs in equal percentages would be a motivating factor to consider rolling an account over to another custodian so you can control the withdrawals as you see appropriate. Using your RMD to rebalance your AA would tend to be difficult. It doesn't sound feasible to not have control of your funds.

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Re: What does your gut tell you; RMD now or in December?

Post by scrabbler1 » Fri Nov 02, 2018 10:05 am

jebmke wrote:
Thu Nov 01, 2018 2:33 pm
Charlieville wrote:
Thu Nov 01, 2018 2:26 pm
Don't take your RMD late in the year--if you die then your beneficiary has to scramble to take the RMD in a very small window. As you age simplicity and reducing complexity are more important than maximizing returns in my view.
True but toward the end of the year makes it easier to use the RMD to manage withholding and avoid timing issues with estimated tax payments. I'm not there yet but if it were me, I'd target late November - by then you can get pretty close on a pro-forma tax return.
My friend has an inherited IRA and I help him manage his portfolio. He doesn't need the RMD for his daily expenses, so we use the RMD to pay some of the income taxes on the rest of investment income from his portfolio. It isn't until at least mid-November when I have a good idea what his tax bill will be, and how to allocate the RMD between federal and state income taxes to keep him within safe harbors on both. Also, it isn't until November when the cash portion of his inherited IRA has accumulated enough money from its other holdings to cover the RMD. We solve two problems at the same time. :happy

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Re: What does your gut tell you; RMD now or in December?

Post by friar1610 » Fri Nov 02, 2018 10:27 am

I'm not saying this is the best RMD strategy, but it has served us well for our small IRAs of roughly equal amounts... We set up the automatic distros with VG in January. One of us takes the distro on 4/1 and 10/1. The other on 7/1 and 12/1. Although we generally reinvest the money in taxable, we are assured of an RMD payment roughly every quarter should we need it. This also DCAs the money out over the course of the year.

Any QCD comes out before the December distro. Then we just manually take the difference between the Dec distro and the QCD as our last distro of the year. (If you have automatic distros set up with VG and you subsequently do a QCD, any remaining scheduled automatic distributions are negated and you revert to a manual mode.)
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Re: What does your gut tell you; RMD now or in December?

Post by garlandwhizzer » Fri Nov 02, 2018 11:06 am

It is not accurately predictable beforehand whether November or December will turn out better. It probably doesn't make a great deal of difference. Personally I'm doing mine in December in order to maximize interest/dividends distributions tax free in my IRA before transferring assets into a personal account where those distributions would be taxed. Historically there is often a Santa Claus rally in December as well which is a good time to sell equity, but like most things in investing, that cannot be counted on.

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Re: What does your gut tell you; RMD now or in December?

Post by onthecusp » Fri Nov 02, 2018 11:39 am

ivk5 wrote:
Fri Nov 02, 2018 5:23 am
motorcyclesarecool wrote:
Fri Nov 02, 2018 5:00 am
The arguments in favor of lump sum investments at the beginning of the year in accumulation would tend to argue in favor of taking RMDs as a lump sum at the end of the year in decumulation.
Agree with analogy but perhaps not conclusion. Lump sum withdrawal as late as possible likely works out best over time for those who can stick with it. DCA (periodic withdrawals) works well for people who won’t stick to lump sum. OP seems to be a good candidate for DCA for this reason.
Unless I'm missing some of the arguments, I think motorcyclesarecool is arguing that "longer time in the market" is better than "dollar cost averaging" both in and out. I agree with that (and ivk5's investor mindset nuance) but I think there are other factors too, at least for deciding which course to start upon reaching RMD age.

With respect to RMDs, when you take them in December (or really any time ONCE a year) you are taking a lump sum out of the market and spending that lump down for the following year. That 'lump' is, on average, out of the market for 6 months. Taking it in 12 (or more) installments through the year leaves the remainder in the market, so that is how I intend to start out unless I have plenty of money in my taxable accounts or Roth.

Once the course has been set for end of year timing it would be hard to change. With last year's RMD late in the year one is kind of stuck, no need to take more out until late in the year, and of course the whole RMD needs to come out before the end of the year.

(Edited for clarity in who I was responding to.)

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Re: What does your gut tell you; RMD now or in December?

Post by The Wizard » Fri Nov 02, 2018 12:07 pm

onthecusp wrote:
Fri Nov 02, 2018 11:39 am
...With respect to RMDs, when you take them in December (or really any time ONCE a year) you are taking a lump sum out of the market and spending that lump down for the following year. That 'lump' is, on average, out of the market for 6 months. Taking it in 12 (or more) installments through the year leaves the remainder in the market, so that is how I intend to start out unless I have plenty of money in my taxable accounts or Roth....
Certainly if someone is planning to spend each RMD over the next 12 months, you have a point.
But some folks use December RMDs to withhold income taxes and reinvest the rest.

Nonetheles, I'm planning on monthly RMDs when I start them in 2020.
I expect to have excess income on average then, moreso than at present.
But some months I have high travel expenses, often the same month a quarterly property tax payment is due.
So the amount of excess income getting reinvested in stock index funds is going to vary considerably month to month...
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Re: What does your gut tell you; RMD now or in December?

Post by sergeant » Fri Nov 02, 2018 12:31 pm

I never listen to my gut. I use facts to make decisions. When in the RMD stage I will pick a date and stick with it.
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Re: What does your gut tell you; RMD now or in December?

Post by delamer » Fri Nov 02, 2018 1:15 pm

teacher wrote:
Fri Nov 02, 2018 8:01 am
Nowizard Worte:
Are you sure you must draw from each fund rather than from the total of each retirement account which may contain several funds?
I am absolutely sure. I have spoken to two Fidelity representatives about this AT&T requirement. They said AT&T does not allow choosing a fund from which to take money to satisfy RMDs. Instead, they require equal percentage deduction from both funds. They could not tell me the reason for the rule. Getting the answer from AT&T would be like finding a needle in a haystack.
The TSP for federal employees — their version of a 401(k) — has the same rule.

But as already mentioned you can move funds around before or after the RMD to get your desired result.

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Re: What does your gut tell you; RMD now or in December?

Post by Jack FFR1846 » Fri Nov 02, 2018 1:20 pm

Dandy wrote:
Thu Nov 01, 2018 3:52 pm
You should pick a date and automate the RMD process. That will avoid the yearly issue of when. I would opt for some time in early/mid November. Don't like to get financial matters done during the holiday/end of year rush if it can be avoided.
^ this

If something gets screwed up, you have plenty of time to see it and fix it. If you're doing something mid December to try to eek out 12 more cents, and something goes wrong, hope the IRS will grant you a reprieve and not charge you the 50% of what you should have taken.
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Re: What does your gut tell you; RMD now or in December?

Post by Ron » Fri Nov 02, 2018 1:36 pm

I/we subscribe to the KISS method.

I/wife have all distributions/gains put in our respective TIRA MM accounts throughout the year. Come the early part of the year (this year, it was January) we do a manual withdrawal against our VG/Fido MM accounts in order to pay our FIT on the RMD withdrawal, FIT on our additional retirement income (SPIA, pensions, SS) for the current year, and if any cash left over, reinvest (be it in the market in taxable funds or business class seats for our next trip).

- Ron

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Re: What does your gut tell you; RMD now or in December?

Post by Oak&Elm » Fri Nov 02, 2018 1:52 pm

I have an inherited IRA which was already in the RMD phase so thus I have to take it as well. Another earlier thread talked about taking the RMD early in the year versus later just in case X happens. Made good sense to me, I now take mine on my Moms birthday Feb 2.... thank you mom

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Re: What does your gut tell you; RMD now or in December?

Post by letsgobobby » Fri Nov 02, 2018 2:03 pm

teacher wrote:
Thu Nov 01, 2018 1:49 pm
I am a big advocate of not timing the market, so we decided to wait to do our first RMDs until the end of the year to allow the possibility of growth and continue tax-deferment as long as possible rather than sell when we think the market is at its peak.

Sixty percent of our portfolio is in the RMD crosshairs. The 401k asset allocation is 65/35. We plan to reinvest the residual in a taxable account.

So, we waited as per plan and it’s November, and the market is haywire to say the least. Even though my question has no definitive answer, if you were in my shoes, what would you do, sell now or wait until December as originally planned?
Assuming you reinvest the RMD after you take it, the difference would be negligible.

However, if you want to optimize the tax benefits of the IRA, consider delaying the RMD to the very end of December. At that point most funds will have declared any dividends, and any reinvestment you do will avoid buying the dividend in a taxable account. Personally I would not plan to wait til the last minute because something could go wrong. I'm taking RMDs in late November and just reinvesting and dealing with the tax on distributions as the cost of doing business.

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Re: What does your gut tell you; RMD now or in December?

Post by Tamarind » Fri Nov 02, 2018 2:13 pm

Dandy wrote:
Thu Nov 01, 2018 3:52 pm
You should pick a date and automate the RMD process. That will avoid the yearly issue of when. I would opt for some time in early/mid November. Don't like to get financial matters done during the holiday/end of year rush if it can be avoided.
I think this is the best advice. The amount you have to withdraw for RMD is set by Jan 1, so it's got to come out no matter how late in the year you wait to do it. Just get it done as automatically as possible so that you can save the brain space for something else.

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