What did you do with your first RMD withdrawal money?

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bighatnohorse
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What did you do with your first RMD withdrawal money?

Post by bighatnohorse » Thu Dec 07, 2017 8:56 am

What did you do with the money from your first RMD?

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Sheepdog
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Re: What did you do with your first RMD withdrawal money?

Post by Sheepdog » Thu Dec 07, 2017 9:02 am

No pension, so used it for expenses and I always have (now 84) :D
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Re: What did you do with your first RMD withdrawal money?

Post by reggiesimpson » Thu Dec 07, 2017 9:15 am

Withdrawing the correct RMD amount in shares of the asset. I'm not selling those shares in the IRA to generate the cash to pay the tax. Then transferring those shares intact so I can still collect the income the asset is generating. The taxes will be paid from cash generated in my taxable account.

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Re: What did you do with your first RMD withdrawal money?

Post by midareff » Thu Dec 07, 2017 9:42 am

First is scheduled for 1/4/2018 and will be used to equally reduce the draw from taxable. It will go directly into an account I use to pay for travel.

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cheese_breath
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Re: What did you do with your first RMD withdrawal money?

Post by cheese_breath » Thu Dec 07, 2017 9:47 am

Reinvested it in taxable account.
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dbr
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Re: What did you do with your first RMD withdrawal money?

Post by dbr » Thu Dec 07, 2017 9:58 am

All RMD's become part of the taxable account as does any distribution from retirement accounts. Withdrawals from a portfolio for spending don't "come from" any particular assets or accounts in the portfolio. Initially the RMD is in the form of cash in the account to which the RMD is deposited. Some people do take RMDs in kind, I understand. Eventually money might be withdrawn from that cash account to spend and money might be taken from that cash account to buy stock or bond holdings in taxable accounts. In the meantime there might be selling and buying in different accounts to maintain asset allocation. Normally I have about 2% of the portfolio is cash accounts here or there.

I guess a person could ask how the size of the RMD in dollars compares to the size of withdrawals in a year. For me the answer is that in some years the RMD amount has exceeded total withdrawals and in other years it has been less.

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Re: What did you do with your first RMD withdrawal money?

Post by montanagirl » Thu Dec 07, 2017 10:06 am

When you get RMDs from Vanguard, can they go straight to a taxable account at VG, or do they need to come all the way "home" to your bank, and then be reinvested (for appearance's sake)?

livesoft
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Re: What did you do with your first RMD withdrawal money?

Post by livesoft » Thu Dec 07, 2017 10:14 am

I have not hit RMD age, but I read this last night in "Finance for Normal People" by Statman
Statman p. 225 wrote:Evidence is also consistent with a reluctance to dip into regular capital. In a study, .... Among people ages 60 to 69, .... only 18 percent made any withdrawals in a typical year. .... Proportions of assets withdrawn from defined-contribution retirement accounts remained small even after age 70 1/2.
Statman pp. 236-237 wrote:Moreover, many choose to spend less than RMD rates. This choice is evident in the effect of the 2009 one-time suspension of RMD rules on withdrawals by members of TIAA, a large financial services company. Roughly one-third of those subject to the RMD rules suspended withdrawals in 2009.
At least behaviorally, it seems many people hate to spend any capital if they can help it. Reasons for this are discussed in the book.
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dbr
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Re: What did you do with your first RMD withdrawal money?

Post by dbr » Thu Dec 07, 2017 10:24 am

livesoft wrote:
Thu Dec 07, 2017 10:14 am
I have not hit RMD age, but I read this last night in "Finance for Normal People" by Statman
Statman p. 225 wrote:Evidence is also consistent with a reluctance to dip into regular capital. In a study, .... Among people ages 60 to 69, .... only 18 percent made any withdrawals in a typical year. .... Proportions of assets withdrawn from defined-contribution retirement accounts remained small even after age 70 1/2.
Statman pp. 236-237 wrote:Moreover, many choose to spend less than RMD rates. This choice is evident in the effect of the 2009 one-time suspension of RMD rules on withdrawals by members of TIAA, a large financial services company. Roughly one-third of those subject to the RMD rules suspended withdrawals in 2009.
At least behaviorally, it seems many people hate to spend any capital if they can help it. Reasons for this are discussed in the book.
So do we infer that the people Statman is talking about live entirely on Social Security and pensions and never spend the savings they have accumulated or do they receive increments of money from Mars or something?

I admit to not having read the book and may need to do so sometime. But if the answer to the question is simple, please set me straight. If the answer is that spending dividends and interest is not spending capital, then don't bother. I also note that RMDs are not just small, but very small, so that would meet the statement above. In fact RMDs relative to the tax deferred portfolio are set in the first place to be a rough approximating of known safe withdrawal rates.

Thanks.

livesoft
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Re: What did you do with your first RMD withdrawal money?

Post by livesoft » Thu Dec 07, 2017 10:30 am

I didn't read the study in the first quote, but here is the reference:
Poterba, Venti, and Wise "The Drawdown of Personal Retirement Assets" NBER Working Paper 16675 (January 2011)

As an aside, perhaps one of the reasons for Wellington and Wellesley to do so well is that no one ever withdraws any significant money from these funds ever.
Last edited by livesoft on Thu Dec 07, 2017 10:37 am, edited 1 time in total.
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artthomp
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Re: What did you do with your first RMD withdrawal money?

Post by artthomp » Thu Dec 07, 2017 10:37 am

I'm not sure now - that was 7 years ago. Now I withhold my federal and state taxes for the year from the distribution, re-balance my portfolio and re-invest any excess in taxable equities
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Re: What did you do with your first RMD withdrawal money?

Post by The Wizard » Thu Dec 07, 2017 10:39 am

dbr wrote:
Thu Dec 07, 2017 9:58 am
All RMD's become part of the taxable account as does any distribution from retirement accounts. Withdrawals from a portfolio for spending don't "come from" any particular assets or accounts in the portfolio...
Right.
I've been taking monthly Distributions from my tax deferred account for 4-1/2 years now. But because I'm just a young lad of 67, they are not "Required" yet.

So in 2020, the year I turn 70.5, I will continue taking Distributions, but will adjust the amount to match the required amount. Right now, that would be a decrease from the approximate 4.0% I'm presently taking to the 3.65% (1/27.4) from the RMD table.
But two years from now, who knows what my tax deferred balance will be.

An RMD amount which is less than previous year's non-required amount seems contrary to inflation, but is countered by a large increase in SS benefit.

Also, a portion of my current monthly Distribution is actually an ongoing Roth conversion. That will need to cease in December 2019, at which point my taxable investment account will be the sole repository of excess income...
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Re: What did you do with your first RMD withdrawal money?

Post by Nowizard » Thu Dec 07, 2017 10:51 am

Reinvested in taxable and gave some to two children.
Tim

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Re: What did you do with your first RMD withdrawal money?

Post by quantAndHold » Thu Dec 07, 2017 11:22 am

montanagirl wrote:
Thu Dec 07, 2017 10:06 am
When you get RMDs from Vanguard, can they go straight to a taxable account at VG, or do they need to come all the way "home" to your bank, and then be reinvested (for appearance's sake)?

I always move the money straight to the taxable account and immediately reinvest. It’s your money to do with as you wish. You just need to remove it from the IRA and pay the taxes on the distribution.

zengolf2011
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Re: What did you do with your first RMD withdrawal money?

Post by zengolf2011 » Thu Dec 07, 2017 11:35 am

Bought a small RV with the first, new golf cart with the second. Guaranteed incomes cover routine living expenses, RMDs for added desires, saving any unspent RMDs. A bucket strategy: guaranteed income and TIRAs for routine and discretionary expenses, taxable account for large or catastrophic, Roth for longevity protection. That's our order of withdrawals.

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Re: What did you do with your first RMD withdrawal money?

Post by JW-Retired » Thu Dec 07, 2017 11:39 am

Nothing special. First and every RMD withdrawal went to withheld taxes and the checking account first. Then it is sooner or later deployed to a combination of spending, family gifting, taxable account investments, and other longer term savings. Like any income.
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Re: What did you do with your first RMD withdrawal money?

Post by RadAudit » Thu Dec 07, 2017 11:58 am

artthomp wrote:
Thu Dec 07, 2017 10:37 am
I'm not sure now - that was 7 years ago. Now I withhold my federal and state taxes for the year from the distribution, re-balance my portfolio and re-invest any excess in taxable equities
+1

I'm in the process of doing that with my first RMD
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Re: What did you do with your first RMD withdrawal money?

Post by friar1610 » Thu Dec 07, 2017 12:19 pm

cheese_breath wrote:
Thu Dec 07, 2017 9:47 am
Reinvested it in taxable account.
+1

Have done the same with every RMD distribution except one which I used for a QCD.
Friar1610

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BolderBoy
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Re: What did you do with your first RMD withdrawal money?

Post by BolderBoy » Thu Dec 07, 2017 12:35 pm

montanagirl wrote:
Thu Dec 07, 2017 10:06 am
When you get RMDs from Vanguard, can they go straight to a taxable account at VG, or do they need to come all the way "home" to your bank, and then be reinvested (for appearance's sake)?
Straight into taxable at VG is good enough.
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Re: What did you do with your first RMD withdrawal money?

Post by Independent » Thu Dec 07, 2017 12:38 pm

I will take my first RMD withdrawal next year. We have enough income from other sources to cover our normal expenses. The IRA is money for long term care expenses.

So the RMD should go into some investment that is reasonably liquid and reasonably stable, but with some positive return. It should be there when we need LTC.

Any suggestions?

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Re: What did you do with your first RMD withdrawal money?

Post by fourwheelcycle » Thu Dec 07, 2017 12:58 pm

My RMDs will begin next year. They will all go to QCDs and most of the funds will go to our local senior center.

My wife and I are very fortunate to have a secure retirement, with sufficient savings to leave adequate amounts to our children. Many seniors in our region are far less fortunate and I want to support the services provided by our area's senior center.

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praxis
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Re: What did you do with your first RMD withdrawal money?

Post by praxis » Thu Dec 07, 2017 1:02 pm

Independent wrote:
Thu Dec 07, 2017 12:38 pm
I will take my first RMD withdrawal next year. We have enough income from other sources to cover our normal expenses. The IRA is money for long term care expenses.

So the RMD should go into some investment that is reasonably liquid and reasonably stable, but with some positive return. It should be there when we need LTC.

Any suggestions?
How about Wellington or Wellesley?

dbr
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Re: What did you do with your first RMD withdrawal money?

Post by dbr » Thu Dec 07, 2017 3:59 pm

Three things in general:

1. After the RMD is distributed from tax protected into taxable account the asset allocation of the portfolio is not supposed to change. The RMD would be invested according to tax efficiency in the taxable portfolio and any rebalancing between stocks and bonds would be done as needed.

2. An RMD does not represent the appearance of wealth that did not exist before. Do speak of what one would "do" with the RMD suggest there may be a misunderstanding here.

3. An RMD may impose a tax cost. The investor will have to withdraw money to pay the taxes.

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Dale_G
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Re: What did you do with your first RMD withdrawal money?

Post by Dale_G » Thu Dec 07, 2017 5:38 pm

The IRS gets paid first, the remainder goes to the taxable account. The IRS gets more than half :D

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Re: What did you do with your first RMD withdrawal money?

Post by Lynette » Thu Dec 07, 2017 5:47 pm

I used part of it to fix up my house. The rest is in my checking account. I'm busy moving my 401K to Vanguard and Fidelity in equal amounts so that I can do some QCDs next year. I likely won't get it all done this year as I only started a few days ago and my former employer insists on sending the check by mail! Next year the RMD will sit in my checking account until I figure out IRMAA after I prepare my taxes. This year I had to pay about another $1,000 for B and D IRMAA as they added a new group. So in the short term, I do not want any dividends, interest or capital gains. The problem with Medicare IRMAAs is that one doesn't know the premiums for the next year until the end of the year.

Does anyone know how the value of my 401K is determined if it is still in transition in Uncle Sam's mail? I was thinking of cleaning out my 401K with rollovers this year but I'm not sure it will be completed by the end of the year.

Thanks.

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Re: What did you do with your first RMD withdrawal money?

Post by sport » Thu Dec 07, 2017 5:50 pm

fourwheelcycle wrote:
Thu Dec 07, 2017 12:58 pm
My RMDs will begin next year. They will all go to QCDs and most of the funds will go to our local senior center.
Keep in mind that you must actually be at least 70.5 to make a QCD. 70.4 does not qualify.

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praxis
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Re: What did you do with your first RMD withdrawal money?

Post by praxis » Thu Dec 07, 2017 6:20 pm

Dale_G wrote:
Thu Dec 07, 2017 5:38 pm
The IRS gets paid first, the remainder goes to the taxable account. The IRS gets more than half :D

Dale
How do you figure it's half?
Doesn't the tax depend on
1. your current tax bracket and
2. the percentage the non deductible contributions (if any) represent as reported on your form 8606 ?

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Re: What did you do with your first RMD withdrawal money?

Post by fourwheelcycle » Thu Dec 07, 2017 6:32 pm

sport wrote:
Thu Dec 07, 2017 5:50 pm
Keep in mind that you must actually be at least 70.5 to make a QCD. 70.4 does not qualify.
Right! I am aware of this. In fact, in order to allow six months to pass after my 70th birthday I will have to work closely with Vanguard to get all of my QCD checks issued before the end of the year. I have already talked to Vanguard about the logistics.

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Re: What did you do with your first RMD withdrawal money?

Post by livesoft » Thu Dec 07, 2017 6:43 pm

praxis wrote:
Thu Dec 07, 2017 6:20 pm
Dale_G wrote:
Thu Dec 07, 2017 5:38 pm
The IRS gets paid first, the remainder goes to the taxable account. The IRS gets more than half :D

Dale
How do you figure it's half?
I will guess it's because Mr. G makes it so. He probably has plenty of other income, but withholds no taxes from the other income and has all his tax liability for all income withheld from his RMD. That's what I intend to do when I get there.
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Re: What did you do with your first RMD withdrawal money?

Post by Taylor Larimore » Thu Dec 07, 2017 7:22 pm

bighatnohorse wrote:
Thu Dec 07, 2017 8:56 am
What did you do with the money from your first RMD?
bighatnohorse:

I put the RMD money into our taxable account and rebalanced the overall portfolio.

Best wishes.
Taylor
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GerryL
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Re: What did you do with your first RMD withdrawal money?

Post by GerryL » Thu Dec 07, 2017 8:00 pm

I'm about a year and a half away from my first RMD. I have created a little Excel spreadsheet to do what-ifs with 3 slices of a pie chart: QCDs, cash for spending (and taxes), and reinvestment. My taxable account is in Balanced Index. I was considering doing some in-kind transfer of Total Stock from the IRA to taxable, but I think that the simplicity of maintaining my 60/40 AA in taxable with Balanced Index might be preferable. Proportion of each slice will depend on how my cash reserves are looking, but I figure about 1/3 of the RMD will go to QCDs.

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Re: What did you do with your first RMD withdrawal money?

Post by joe8d » Thu Dec 07, 2017 8:40 pm

Reinvested in taxable account.
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Re: What did you do with your first RMD withdrawal money?

Post by itstoomuch » Thu Dec 07, 2017 9:44 pm

Sept 2017, Annual. Wife's first RMD. First withdrawals from glwb fixed-indexed annuities. Should be enough for at at least two more years of excellent Market growth in other IRAs. Funds went into checking/savings account to replace a draw for a retirement home.

I'm taking small IRA withdrawals because of health reasons and excess funding.
I will need to fully understand our 2018 taxes before taking more withdrawals.

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Re: What did you do with your first RMD withdrawal money?

Post by SpringMan » Fri Dec 08, 2017 9:26 am

Our first RMD was this year. It was my spouse's. Next year we both have RMDs. Mine is almost 4 times hers. Federal taxes were withheld and the remainder reinvested in a joint taxable account. Coincidentally we made an equal contribution to our grandkids college plans
Best Wishes, SpringMan

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Parthenon
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Re: What did you do with your first RMD withdrawal money?

Post by Parthenon » Fri Dec 08, 2017 11:40 am

Turned the entire amount into a Qualified Charitable Distribution. Spread the money over about a dozen charities plus my church and school.

Ed
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Re: What did you do with your first RMD withdrawal money?

Post by WhiteMaxima » Fri Dec 08, 2017 11:53 am

529 for future generations. Tax free estate transfer.

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Re: What did you do with your first RMD withdrawal money?

Post by obgraham » Fri Dec 08, 2017 11:55 am

Since we live out of the IRA now (wasn't that its purpose?):

I spend my RMD.

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Re: What did you do with your first RMD withdrawal money?

Post by munemaker » Fri Dec 08, 2017 12:04 pm

bighatnohorse wrote:
Thu Dec 07, 2017 8:56 am
What did you do with the money from your first RMD?
You do not have to take money. You can just transfer the investment from TIRA to taxable. For example, if you hold VTSAX in your IRA, you can just transfer it to taxable.

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praxis
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Re: What did you do with your first RMD withdrawal money?

Post by praxis » Fri Dec 08, 2017 1:05 pm

livesoft wrote:
Thu Dec 07, 2017 6:43 pm
praxis wrote:
Thu Dec 07, 2017 6:20 pm
Dale_G wrote:
Thu Dec 07, 2017 5:38 pm
The IRS gets paid first, the remainder goes to the taxable account. The IRS gets more than half :D

Dale
How do you figure it's half?
I will guess it's because Mr. G makes it so. He probably has plenty of other income, but withholds no taxes from the other income and has all his tax liability for all income withheld from his RMD. That's what I intend to do when I get there.
I thought he was referring to the tax due on the RMD.

Is there an advantage (besides the convenience) of withholding all taxes due from your RMD?

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Re: What did you do with your first RMD withdrawal money?

Post by nbseer » Fri Dec 08, 2017 1:30 pm

Yes the advantage of having a full year's federal tax withheld from the RMD is you don't have to make quarterly tax payments during the year.

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Re: What did you do with your first RMD withdrawal money?

Post by sport » Fri Dec 08, 2017 3:14 pm

munemaker wrote:
Fri Dec 08, 2017 12:04 pm
bighatnohorse wrote:
Thu Dec 07, 2017 8:56 am
What did you do with the money from your first RMD?
You do not have to take money. You can just transfer the investment from TIRA to taxable. For example, if you hold VTSAX in your IRA, you can just transfer it to taxable.
This is no different than selling the holding in the TIRA and using the money to buy it in taxable. The value is taxed as ordinary income either way. Your cost basis would also be the same either way.

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Re: What did you do with your first RMD withdrawal money?

Post by vest74 » Fri Dec 08, 2017 3:35 pm

Some people do take RMDs in kind, I understand.
So you are saying you can take in kind and just keep track of amount of shares or transfer them(shares) from the IRA to
a non-tax sheltered account? sounds easier than selling in the IRA and re buying in the taxable account.
I thought that any shares at all needed to be sold for cash, then that amount is taxable as income?

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Re: What did you do with your first RMD withdrawal money?

Post by plumberboy » Fri Dec 08, 2017 3:42 pm

After being fully retired for several years I decided to take a part time job with a food catering company to keep myself occupied. That qualifies me for a Roth IRA so part of my RMD pays state and federal taxes, part into a Roth and the rest into Vanguard personal account .

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Re: What did you do with your first RMD withdrawal money?

Post by munemaker » Fri Dec 08, 2017 3:56 pm

sport wrote:
Fri Dec 08, 2017 3:14 pm
munemaker wrote:
Fri Dec 08, 2017 12:04 pm
bighatnohorse wrote:
Thu Dec 07, 2017 8:56 am
What did you do with the money from your first RMD?
You do not have to take money. You can just transfer the investment from TIRA to taxable. For example, if you hold VTSAX in your IRA, you can just transfer it to taxable.
This is no different than selling the holding in the TIRA and using the money to buy it in taxable. The value is taxed as ordinary income either way. Your cost basis would also be the same either way.
If you take the money and then buy the fund, you are going to be out of the market for a couple days. Doing a direct transfer means you will buy and sell at the same price, so there is a difference.

My real point is you don't need to do anything with the RMD. Just keep it invested the way it was.

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Re: What did you do with your first RMD withdrawal money?

Post by munemaker » Fri Dec 08, 2017 3:59 pm

vest74 wrote:
Fri Dec 08, 2017 3:35 pm
Some people do take RMDs in kind, I understand.
So you are saying you can take in kind and just keep track of amount of shares or transfer them(shares) from the IRA to
a non-tax sheltered account? sounds easier than selling in the IRA and re buying in the taxable account.
I thought that any shares at all needed to be sold for cash, then that amount is taxable as income?
They are still taxable as income, whether you buy through transfer or take the cash and buy the shares. Only advantage is you are continuously in the market. Point is you don't have to decide what to do with the money. Just keep it invested the way it was previously.

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praxis
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Re: What did you do with your first RMD withdrawal money?

Post by praxis » Fri Dec 08, 2017 4:27 pm

munemaker wrote:
Fri Dec 08, 2017 3:59 pm
vest74 wrote:
Fri Dec 08, 2017 3:35 pm
Some people do take RMDs in kind, I understand.
So you are saying you can take in kind and just keep track of amount of shares or transfer them(shares) from the IRA to
a non-tax sheltered account? sounds easier than selling in the IRA and re buying in the taxable account.
I thought that any shares at all needed to be sold for cash, then that amount is taxable as income?
They are still taxable as income, whether you buy through transfer or take the cash and buy the shares. Only advantage is you are continuously in the market. Point is you don't have to decide what to do with the money. Just keep it invested the way it was previously.
If you chose to sell shares in the IRA, then buy new shares in your taxable account, wouldn't you get a stepped up cost for your new shares? What would be the impact on cost if you bought through transfer?

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Re: What did you do with your first RMD withdrawal money?

Post by munemaker » Fri Dec 08, 2017 5:01 pm

praxis wrote:
Fri Dec 08, 2017 4:27 pm
munemaker wrote:
Fri Dec 08, 2017 3:59 pm
vest74 wrote:
Fri Dec 08, 2017 3:35 pm
Some people do take RMDs in kind, I understand.
So you are saying you can take in kind and just keep track of amount of shares or transfer them(shares) from the IRA to
a non-tax sheltered account? sounds easier than selling in the IRA and re buying in the taxable account.
I thought that any shares at all needed to be sold for cash, then that amount is taxable as income?
They are still taxable as income, whether you buy through transfer or take the cash and buy the shares. Only advantage is you are continuously in the market. Point is you don't have to decide what to do with the money. Just keep it invested the way it was previously.
If you chose to sell shares in the IRA, then buy new shares in your taxable account, wouldn't you get a stepped up cost for your new shares? What would be the impact on cost if you bought through transfer?
BAsis and taxes are the same either way...transfer or buy and sell. Only differences:With transfer you are not out of the market, and you don't have to decide to do something different with the money.

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Re: What did you do with your first RMD withdrawal money?

Post by John151 » Fri Dec 08, 2017 5:02 pm

I invested my first RMD in a tax-exempt bond fund. Subsequent RMD’s have been going into that fund too.

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SpringMan
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Location: Michigan

Re: What did you do with your first RMD withdrawal money?

Post by SpringMan » Sat Dec 09, 2017 12:19 pm

plumberboy wrote:
Fri Dec 08, 2017 3:42 pm
After being fully retired for several years I decided to take a part time job with a food catering company to keep myself occupied. That qualifies me for a Roth IRA so part of my RMD pays state and federal taxes, part into a Roth and the rest into Vanguard personal account .
Not your situation but for others benefit, money converted from a traditional IRA to a Roth does not satisfy your RMD requirement. Of course moving the RMD to your taxable and using that money as a new contribution to a Roth is acceptable when you otherwise qualify for a Roth.
Best Wishes, SpringMan

sport
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Location: Cleveland, OH

Re: What did you do with your first RMD withdrawal money?

Post by sport » Sat Dec 09, 2017 12:57 pm

SpringMan wrote:
Sat Dec 09, 2017 12:19 pm
plumberboy wrote:
Fri Dec 08, 2017 3:42 pm
After being fully retired for several years I decided to take a part time job with a food catering company to keep myself occupied. That qualifies me for a Roth IRA so part of my RMD pays state and federal taxes, part into a Roth and the rest into Vanguard personal account .
Not your situation but for others benefit, money converted from a traditional IRA to a Roth does not satisfy your RMD requirement. Of course moving the RMD to your taxable and using that money as a new contribution to a Roth is acceptable when you otherwise qualify for a Roth.
As I understand the rules, the first withdrawals from a TIRA must be used to satisfy RMD requirements. That money is not allowed to be used for Roth conversion (it can be used for QCDs). After the RMD has been met, Roth conversions may then be done.

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