"Taking" RMDs

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Ron Scott
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"Taking" RMDs

Post by Ron Scott »

So when you "take" your RMD, do you sell assets to do so, transfer assets and just pay the taxes, or a little of both?
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123
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Re: "Taking" RMDs

Post by 123 »

The RMD requirement is only that money be removed/withdrawn/distributed from the accoun. That distribution is taxable.

Spouse has an inherited IRA that, of course, has RMDS. It's all invested in Vanguard Total Market Fund at Vanguard with their automatic RMD service. So once a year they determine the amount of the RMD required, sell that amount of the fund, and send a payment to another accout we have identified. In this particular instance the RMD is not large so we have it go into a taxable account which we use for rebalancing.
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sport
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Re: "Taking" RMDs

Post by sport »

I first make QCDs throughout the year. Then I sell the remaining RMD amount and have federal tax withheld from the proceeds. I have to pay state tax a different way because Vanguard will not withhold for my state.
The Wizard
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Re: "Taking" RMDs

Post by The Wizard »

Ron Scott wrote: Tue Sep 18, 2018 10:47 am So when you "take" your RMD, do you sell assets to do so, transfer assets and just pay the taxes, or a little of both?
When I start RMDs 16 months from now, I'll continue taking monthly distributions as I have been for the past several years, except that I'll probably lower the amount down to 1/12 the RMD amount, since I'll be starting age 70 SS around the same time.

The mechanics of my distribution are a pro rata withdrawal from tax deferred sold and sent to my checking account, with a certain percentage withheld for income taxes...
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Topic Author
Ron Scott
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Re: "Taking" RMDs

Post by Ron Scott »

Of course, whether you actually sell an asset or simply transfer it out of the IRA is a separate issue from taking the distribution.
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BigFoot48
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Re: "Taking" RMDs

Post by BigFoot48 »

When mine starts next year, I will be selling Vanguard Total Bond fund in December and buying Total Bond and/or Vanguard Tax-Exempt Bond fund in the taxable account. Exactly what I have been doing for my 92-YO MIL for many years.
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rkhusky
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Re: "Taking" RMDs

Post by rkhusky »

Ron Scott wrote: Tue Sep 18, 2018 12:16 pm Of course, whether you actually sell an asset or simply transfer it out of the IRA is a separate issue from taking the distribution.
There is no transfer. With the RMD, you sell shares in the IRA/401k and either send the cash to a checking account or buy shares in a taxable account with the cash.
btenny
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Re: "Taking" RMDs

Post by btenny »

I sell shares in my IRA and use the cash plus some dividend cash to do QCD distributions to my three charities in June. Then I distribute the rest of the RMD in cash from my IRA to my other taxable brokerage account in July. I also pay the IRS and state taxes when I make that distribution. I did all this in mid year for convenience. Others wait until December.

I have not tried to do "in kind" transfers but the RMD forms have that as a option.

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Ron Scott
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Re: "Taking" RMDs

Post by Ron Scott »

rkhusky wrote: Tue Sep 18, 2018 12:28 pm
Ron Scott wrote: Tue Sep 18, 2018 12:16 pm Of course, whether you actually sell an asset or simply transfer it out of the IRA is a separate issue from taking the distribution.
There is no transfer. With the RMD, you sell shares in the IRA/401k and either send the cash to a checking account or buy shares in a taxable account with the cash.
So, let’s say you own 30 year treasury bond units still paying 7% interest. You don’t want to sell, you want to transfer and pay the taxes separately.
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NotWhoYouThink
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Re: "Taking" RMDs

Post by NotWhoYouThink »

For an inherited IRA, I have set up automatic RMD so that Vanguard sells proportionately from the equity and bond fund in the account, withholds federal tax, and sends funds to our checking account. My tentative plan is to have enough moved from traditional to Roth IRAs in retirement that we'll use the RMDs either for QCDs or for normal spending, so we'd handle it the same way - sell, take out taxes, and transfer the cash to checking.
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ResearchMed
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Re: "Taking" RMDs

Post by ResearchMed »

rkhusky wrote: Tue Sep 18, 2018 12:28 pm
Ron Scott wrote: Tue Sep 18, 2018 12:16 pm Of course, whether you actually sell an asset or simply transfer it out of the IRA is a separate issue from taking the distribution.
There is no transfer. With the RMD, you sell shares in the IRA/401k and either send the cash to a checking account or buy shares in a taxable account with the cash.
At least at some financial firms, one can indeed "transfer in kind", which we have done.
This is useful if there would be any buy/sell fees, or for a closed fund.

We've varied how we take RMD's. We don't yet need to take RMD's from the "big pot", which is a 403b, and DH is still working.
So we need to take RMD's from the smaller IRA's we each have, plus my 403b.

Sometimes we have it all withdrawn as taxes (can't be done entirely at Vanguard, nor can state taxes be withheld in our state at Vanguard, so we sometimes use Schwab or TIAA for that), if we think we haven't paid enough quarlerly. (Withholding is considered evenly distributed, regardless of income timing.)

Or we just move cash into a taxable account if the withholding is already topped up fine.
Twice, we've transferred "in kind" from an IRA to taxable account, at Schwab.

Later, when we need the RMD's for living expenses, we'll mostly transfer cash to a taxable account for spending.

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celia
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Re: "Taking" RMDs

Post by celia »

rkhusky wrote: Tue Sep 18, 2018 12:28 pm
Ron Scott wrote: Tue Sep 18, 2018 12:16 pm Of course, whether you actually sell an asset or simply transfer it out of the IRA is a separate issue from taking the distribution.
There is no transfer. With the RMD, you sell shares in the IRA/401k and either send the cash to a checking account or buy shares in a taxable account with the cash.
I was going to say the same thing as Ron Scott. Since the title of the thread is ' "Taking RMDs', it seems he wasn't talking about buying or selling in a tax-deferred or taxable account, but about the DISTRIBUTION PROCESS. A distribution can also be called a "withdrawal", or an amount that is "transferred" or "taken out". The only thing the RMD can't do is be converted. [This is also a "distribution" expect that the destination is a Roth account.] Whether you take out/distribute/withdraw/transfer/withdraw, it is all the same. The buying and selling are separate from that and can be done even if there is no taking out, distribution, withdrawing, transferring, or withdrawal.
Ron Scott wrote: So when you "take" your RMD, do you sell assets to do so, transfer assets and just pay the taxes, or a little of both?
It is your choice if you want to sell or not. You can distribute cash or shares. You can withhold for taxes or pay them another way. It is up to you.

As far as me, I've done all of them.
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Steelersfan
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Re: "Taking" RMDs

Post by Steelersfan »

A very recent thread on RMD's, with a link to another not quite as recent thread:

viewtopic.php?f=1&t=258741
NoHeat
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Re: "Taking" RMDs

Post by NoHeat »

What would happen with RMDs if your account was filled only with assets that are lumpy (e.g., a dozen shares of AMZN at $1941 per share), or illiquid (e.g., shares of a non-publicly-traded stock, like a family farm)?
sport
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Re: "Taking" RMDs

Post by sport »

NoHeat wrote: Tue Sep 18, 2018 4:27 pm What would happen with RMDs if your account was filled only with assets that are lumpy (e.g., a dozen shares of AMZN at $1941 per share), or illiquid (e.g., shares of a non-publicly-traded stock, like a family farm)?
You would have to either liquidate part of the holding, or transfer the ownership of a portion to satisfy the RMD. One way or another, the value has to be distributed.
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ResearchMed
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Re: "Taking" RMDs

Post by ResearchMed »

sport wrote: Tue Sep 18, 2018 4:46 pm
NoHeat wrote: Tue Sep 18, 2018 4:27 pm What would happen with RMDs if your account was filled only with assets that are lumpy (e.g., a dozen shares of AMZN at $1941 per share), or illiquid (e.g., shares of a non-publicly-traded stock, like a family farm)?
You would have to either liquidate part of the holding, or transfer the ownership of a portion to satisfy the RMD. One way or another, the value has to be distributed.
If it's illiquid (or if you don't want to liquidate for any reason), then after it's transferred to a taxable account, the appropriate amount of taxes due can be paid from any cash you have.

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rkhusky
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Re: "Taking" RMDs

Post by rkhusky »

Ron Scott wrote: Tue Sep 18, 2018 12:40 pm
rkhusky wrote: Tue Sep 18, 2018 12:28 pm
Ron Scott wrote: Tue Sep 18, 2018 12:16 pm Of course, whether you actually sell an asset or simply transfer it out of the IRA is a separate issue from taking the distribution.
There is no transfer. With the RMD, you sell shares in the IRA/401k and either send the cash to a checking account or buy shares in a taxable account with the cash.
So, let’s say you own 30 year treasury bond units still paying 7% interest. You don’t want to sell, you want to transfer and pay the taxes separately.
Sorry for the confusion. I am used to the terms "transfer" and "transfer in kind" as referring to a process where you don't need to pay taxes or have taxes taken out of the transferred amount. I hadn't considered items, such as an individual bond or, I suppose, a piece of physical gold, that you need/want to remove from your tax-deferred account, but want to maintain ownership.
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Re: "Taking" RMDs

Post by Greenman72 »

I have never seen, nor heard of an in-kind distribution from an IRA. I don’t really know why anybody would want to do that.

“And no, you can’t transfer assets out of an IRA and not pay tax. That’s the whole point of RMD—to force you to pay tax.
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ResearchMed
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Re: "Taking" RMDs

Post by ResearchMed »

Greenman72 wrote: Tue Sep 18, 2018 10:13 pm I have never seen, nor heard of an in-kind distribution from an IRA. I don’t really know why anybody would want to do that.

“And no, you can’t transfer assets out of an IRA and not pay tax. That’s the whole point of RMD—to force you to pay tax.
Why?

As I posted above,

"At least at some financial firms, one can indeed "transfer in kind", which we have done.
This is useful if there would be any buy/sell fees, or for a closed fund.
"

RM
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