Required Minimum Distributions

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Beach Guy
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Required Minimum Distributions

Post by Beach Guy » Sat Jun 01, 2019 6:53 am

What is the best way to take required minimum distributions? Should I take what is required as a lump sum in January? Then pay the taxes due to avoid quarterly estimated taxes? Would it be better to take them as I need them throughout the year? Would it be better to take twelve equal distributions throughout the year? Should I leave the money in the account to earn interest and take what is required in December? Suggestions would be appreciated.

jebmke
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Re: Required Minimum Distributions

Post by jebmke » Sat Jun 01, 2019 7:15 am

I am still 4 years away from RMD (based on current law). Since we pay estimated taxes on other income, my plan is to take the RMD some time in December when I have a pretty firm estimate of our tax liability. I will elect to withhold taxes sufficient to cover any estimated taxes we have. Since withholding is treated as if it had occurred throughout the year, this will reduce any chance of a penalty due to timing differences/shortfall in quarterly estimates.

In addition, since we will be doing QCDs, I believe that the QCDs should be paid out prior to making a taxable distribution in order to have the QCD count toward the RMD. So, by December, we will know what QCDs have been paid out and can make a "plug" taxable distribution to satisfy the total RMD amount.
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The Wizard
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Re: Required Minimum Distributions

Post by The Wizard » Sat Jun 01, 2019 8:12 am

I'm not sure there's a "best" way, but a really good way is to take twelve monthly payments on the early side of each month.

Prior to turning age 70, how did you do it?
I've been doing monthly withdrawals from tax-deferred since retiring at age 63. A portion of each monthly withdrawal has been an ongoing Roth conversion, so when I need to start RMDs, those conversions will stop.
But the monthly withdrawal concept will continue...
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Blackwood
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Re: Required Minimum Distributions

Post by Blackwood » Sat Jun 01, 2019 8:44 am

Does anyone know if Vanguard can withhold federal and state income tax from RMDs? I don't see anything about withholding on Vanguard's website which suggests that they don't do it.

BigPrince
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Re: Required Minimum Distributions

Post by BigPrince » Sat Jun 01, 2019 8:49 am

Blackwood wrote:
Sat Jun 01, 2019 8:44 am
Does anyone know if Vanguard can withhold federal and state income tax from RMDs? I don't see anything about withholding on Vanguard's website which suggests that they don't do it.
Generally, you can always do Federal with a minimum of 10% if you opt for a withholding. State rules vary, so withholding options at VG vary for state.

They basically only do it for state if required by law to offer it.

http://vanguard.com/pdf/sawtc.pdf <2018 PDF giving some info on state withholding

tenkuky
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Re: Required Minimum Distributions

Post by tenkuky » Sat Jun 01, 2019 8:51 am

jebmke wrote:
Sat Jun 01, 2019 7:15 am
I will elect to withhold taxes sufficient to cover any estimated taxes we have. Since withholding is treated as if it had occurred throughout the year, this will reduce any chance of a penalty due to timing differences/shortfall in quarterly estimates.
I learned something here. So contrary to my belief, is it better to have custodian withhold taxes from RMD rather than pay myself from taxable/savings?
In that way it’s different from Roth conversions which favor latter approach.

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Rob5TCP
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Re: Required Minimum Distributions

Post by Rob5TCP » Sat Jun 01, 2019 8:55 am

Vanguard willl w/h 10% of Federal unless advised otherwise by you.
For state w/h they withhold for the following states only:

https://vanguard.com/pdf/sawtc.pdf

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midareff
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Re: Required Minimum Distributions

Post by midareff » Sat Jun 01, 2019 8:57 am

At age 71 I still want (and do) to travel and see the parts of the world we haven't gotten to yet so our RMD is used for travel spending. it is drawn 1/12 monthly direct to a bank account where it accumulates along with other travel dedicated funds. EFTPS paid Quarterly IRS estimates are done at the end of the previous year and escrowed in a different interest bearing account along with property tax and car & condo insurances. A couple of clicks to set it up and forget about it until next year. ... all automatic scheduled transactions. Get on with the important business of being retired and forgetaboutit. :sharebeer

jebmke
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Re: Required Minimum Distributions

Post by jebmke » Sat Jun 01, 2019 8:58 am

tenkuky wrote:
Sat Jun 01, 2019 8:51 am
jebmke wrote:
Sat Jun 01, 2019 7:15 am
I will elect to withhold taxes sufficient to cover any estimated taxes we have. Since withholding is treated as if it had occurred throughout the year, this will reduce any chance of a penalty due to timing differences/shortfall in quarterly estimates.
I learned something here. So contrary to my belief, is it better to have custodian withhold taxes from RMD rather than pay myself from taxable/savings?
In that way it’s different from Roth conversions which favor latter approach.
it is only "better" to the extent that withholding doesn't need to be timely as long as it occurs before the end of the year. Quarterly estimated payments need to be made in a timely fashion in order to avoid a penalty in many cases. For example (oversimplified), if my tax liability is going to be $20,000, if I do quarterly estimated payments, I need to make four payments of $5,000 starting in April to avoid a penalty (it is not quite that simple but you will get the point). If I elect to withhold $20,000 from an RMD, I can have it withheld from an IRA distribution in December and not incur a late payment penalty. In addition to avoiding the late penalty, I don't really have to know what my liability is until December. The withholding can cover both the tax due on the RMD as well as taxes due on other income not subject to withholding (e.g. dividends, interest, capital gains).
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mpnret
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Re: Required Minimum Distributions

Post by mpnret » Sat Jun 01, 2019 9:02 am

I wait to December to take my RMD with fed and st taxes withheld. That way money remains invested tax deferred till end of year, no taxes paid till end of year but IRS accepts it as being paid throughout the year being it's withheld. It's easier to determine my tax due when I wait till close to the end of the year plus no messing around with quartley payments.

tomd37
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Re: Required Minimum Distributions

Post by tomd37 » Sat Jun 01, 2019 9:11 am

BeachGuy,
Jebmke mentions a very important point concerning qualified charitable distributions (QCDs) and the timing of those QCDs in relation to your RMDs. As you probably know, the actual QCD cannot be done until the day you actually attain the age of 70.5 in order to qualify as a QCD. Such QCDs are not considered taxable income for federal tax purposes and although you will receive a Form 1099-R for the full amount of your RMD, it is incumbent on the taxpayer to report the taxable portion of the RMD properly on their federal tax return by reducing the amount of the RMD by the amount of the QCD. Lines 4a and 4b of the new Form 1040 apply to this situation with the proper notation for a QCD on line 4b.

I personally do all my QCDs before taking the remaining part of the RMD. In the past I ten years I have taken my QCDs in mid-year and after they are completed I take the remaining portion of the RMD. By that time I have determined what percentage of federal tax I want to withhold from the RMD to meet my total federal tax withholding needs and have that amount or percentage equivalent withheld on that final RMD. This procedure negates the need for me to have quarterly estimated tax payments. You have seen and will see here various timings and methods of doing the RMD and that is a personal choice and method for each of us.

Now as I go further into my early 80s I have started taking my QCD and RMD earlier in the year. This way I know it is done and don't have to be concerned should something happen to me. My spouse knows it is already taken care of for that year.
Tom D.

22twain
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Re: Required Minimum Distributions

Post by 22twain » Sat Jun 01, 2019 9:11 am

tenkuky wrote:
Sat Jun 01, 2019 8:51 am
So contrary to my belief, is it better to have custodian withhold taxes from RMD rather than pay myself from taxable/savings?
In that way it’s different from Roth conversions which favor latter approach.
With Roth conversions it makes a difference because if you pay the tax from funds from your taxable accounts, you can invest all of the converted funds in the Roth IRA and let them continue to grow tax-free. Withholding the tax from the converted funds reduces the amount you can invest in the Roth.

With RMDs you don't have that issue, because you have to reinvest them in a taxable account, if you don't spend them. You can't reinvest them in an IRA.
Last edited by 22twain on Sat Jun 01, 2019 11:34 am, edited 1 time in total.
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sport
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Re: Required Minimum Distributions

Post by sport » Sat Jun 01, 2019 9:18 am

I make QCDs at various times throughout the year. In late November, I determine how much Federal Tax I need to pay and have that amount withheld when I withdraw the balance of my RMD. Vanguard will not withhold for my state.
Note: You must have reached the age of 70.5 to make a QCD. RMDs can begin any time during the year you reach 70.5.

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ResearchMed
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Re: Required Minimum Distributions

Post by ResearchMed » Sat Jun 01, 2019 9:23 am

tenkuky wrote:
Sat Jun 01, 2019 8:51 am
jebmke wrote:
Sat Jun 01, 2019 7:15 am
I will elect to withhold taxes sufficient to cover any estimated taxes we have. Since withholding is treated as if it had occurred throughout the year, this will reduce any chance of a penalty due to timing differences/shortfall in quarterly estimates.
I learned something here. So contrary to my belief, is it better to have custodian withhold taxes from RMD rather than pay myself from taxable/savings?
In that way it’s different from Roth conversions which favor latter approach.
"It depends" - no surprise.

IF you think you might have underpaid withholding throughout the year (meaning before Q4), then yes...!
If you have the RMD taxes withheld (or even, to an extreme) have most/all of the RMD withheld*), then that amount would not be considered paid "late".
But if you withdrew the RMD, and then paid the exact same amount in taxes, anything "late" would indeed still be "late".

* Note: Some vendors, including Vanguard will NOT withhold 100%, so there may still be a small amount of the RMD that needs to be directed somewhere.

RM
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cherijoh
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Re: Required Minimum Distributions

Post by cherijoh » Sat Jun 01, 2019 9:30 am

tenkuky wrote:
Sat Jun 01, 2019 8:51 am
jebmke wrote:
Sat Jun 01, 2019 7:15 am
I will elect to withhold taxes sufficient to cover any estimated taxes we have. Since withholding is treated as if it had occurred throughout the year, this will reduce any chance of a penalty due to timing differences/shortfall in quarterly estimates.
I learned something here. So contrary to my belief, is it better to have custodian withhold taxes from RMD rather than pay myself from taxable/savings?
In that way it’s different from Roth conversions which favor latter approach.
I wouldn't necessarily say it is better, but it is an alternative way of doing it. YMMV depending on how regular your retirement income sources tend to be. If you have a pension, that is another option for withholding vs. estimated tax payments.

I do agree that withholding is a bad idea if the distribution is for a Roth conversion.

Dandy
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Re: Required Minimum Distributions

Post by Dandy » Sun Jun 02, 2019 7:12 am

My advice is to automate the RMD withdrawals. You don't want to wait to December to decide and then forget, get sick etc. Set it up to go in early December and then if you want to change how it is tapped or withholding, etc. you can over ride the automated set up.

I set up mine to take the RMD proportionately - this reduces the need to rebalance. Again, if for some reason I wanted to take only from fixed income, I would override the automated set up.

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fishandgolf
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Re: Required Minimum Distributions

Post by fishandgolf » Sun Jun 02, 2019 7:27 am

22twain wrote:
Sat Jun 01, 2019 9:11 am
tenkuky wrote:
Sat Jun 01, 2019 8:51 am
So contrary to my belief, is it better to have custodian withhold taxes from RMD rather than pay myself from taxable/savings?
In that way it’s different from Roth conversions which favor latter approach.
With Roth conversions it makes a difference because if you pay the tax from funds from your taxable accounts, you can invest all of the converted funds in the Roth IRA and let them continue to grow tax-free. Withholding the tax from the converted funds reduces the amount you can invest in the Roth.

With RMDs you don't have that issue, because you have to reinvest them in a taxable account, if you don't spend them. You can't reinvest them in an IRA.
I am a bit confused with 22twain's comments. If you're taking your RMD and converting all of it into a Roth IRA and then investing it (assuming into a taxable account), why does it matter if you take the $ from a taxable account to pay the taxes or if you reduce the RMD by that same amount. Do you not end up with the same amount in your taxable account(s)? :?

bsteiner
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Re: Required Minimum Distributions

Post by bsteiner » Sun Jun 02, 2019 7:39 am

Here's the information on withholding for Vanguard IRAs: https://personal.vanguard.com/pdf/s166.pdf?2210105563.

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BL
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Re: Required Minimum Distributions

Post by BL » Sun Jun 02, 2019 7:53 am

fishandgolf wrote:
Sun Jun 02, 2019 7:27 am
22twain wrote:
Sat Jun 01, 2019 9:11 am
tenkuky wrote:
Sat Jun 01, 2019 8:51 am
So contrary to my belief, is it better to have custodian withhold taxes from RMD rather than pay myself from taxable/savings?
In that way it’s different from Roth conversions which favor latter approach.
With Roth conversions it makes a difference because if you pay the tax from funds from your taxable accounts, you can invest all of the converted funds in the Roth IRA and let them continue to grow tax-free. Withholding the tax from the converted funds reduces the amount you can invest in the Roth.

With RMDs you don't have that issue, because you have to reinvest them in a taxable account, if you don't spend them. You can't reinvest them in an IRA.
I am a bit confused with 22twain's comments. If you're taking your RMD and converting all of it into a Roth IRA and then investing it (assuming into a taxable account), why does it matter if you take the $ from a taxable account to pay the taxes or if you reduce the RMD by that same amount. Do you not end up with the same amount in your taxable account(s)? :?
You cannot put RMDs into a Roth. You must take the RMDs before you then also convert some more of your IRA to Roth. At least in some cases, the brokerage prevents you from making this mistake.

kaneohe
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Re: Required Minimum Distributions

Post by kaneohe » Sun Jun 02, 2019 8:20 am

fishandgolf wrote:
Sun Jun 02, 2019 7:27 am
22twain wrote:
Sat Jun 01, 2019 9:11 am
...................................................
With Roth conversions it makes a difference because if you pay the tax from funds from your taxable accounts, you can invest all of the converted funds in the Roth IRA and let them continue to grow tax-free. Withholding the tax from the converted funds reduces the amount you can invest in the Roth.

.......................................................
I am a bit confused with 22twain's comments. If you're taking your RMD (distribution) and converting all of it into a Roth IRA and then investing it (assuming into a taxable account), why does it matter if you take the $ from a taxable account to pay the taxes or if you reduce the RMD (distribution) by that same amount. Do you not end up with the same amount in your taxable account(s)? :?
22twain is saying that when converting TIRA distribution to Roth,it is better to pay the taxes from a taxable account than from the TIRA
distribution. That way more ends up in the Roth..........so you end up w/ less in taxable and more in Roth which is more favorable for future growth. As BL points out, you cannot Roth convert an RMD........you can do Roth conversion only after you have withdrawn the RMD to taxable account. An additional distribution after the RMD must be made in order to do a Roth conversion.

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Flobes
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Re: Required Minimum Distributions

Post by Flobes » Sun Jun 02, 2019 11:04 am

Beach Guy wrote:
Sat Jun 01, 2019 6:53 am
What is the best way to take required minimum distributions?
Welcome to the Forum, Beach Guy.

There is no best way to take RMDs, because different strategies are best for different people's different situations. Much depends on what you plan to do with the money.

I take mine Dec 1. I use my RMD to cover my annual estimated federal taxes, by withholding amount ample to reach safe harbor. Pretty simple. And send the rest to money market in my taxable account, then figure out what to do with that after quarterly dividends land in there later in the month.

quantAndHold
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Re: Required Minimum Distributions

Post by quantAndHold » Sun Jun 02, 2019 11:10 am

Back to the original question, we keep it simple. We use our RMD’s for living expenses, so the first time we need money during a year, we take the RMDs.

We have taxes withheld from RMDs, because we have to pay the taxes anyway. We also have 15% withheld from Social Security.

We pay taxes on Roth conversions with after tax money, so we don’t do withholding on those.

Since our income is almost all investments, our income is super lumpy and unpredictable. I created a spreadsheet to calculate estimated taxes every quarter, so at the end of every quarter, I run the spreadsheet and pay estimated taxes if necessary. As long as I didn’t do a big Roth conversion, we usually don’t need to pay any estimated taxes to be feds. Since we don’t pay any state withholding, we may have to pay the state something.

mpnret
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Re: Required Minimum Distributions

Post by mpnret » Sun Jun 02, 2019 11:13 am

Dandy wrote:
Sun Jun 02, 2019 7:12 am
My advice is to automate the RMD withdrawals. You don't want to wait to December to decide and then forget, get sick etc. Set it up to go in early December and then if you want to change how it is tapped or withholding, etc. you can over ride the automated set up.

I set up mine to take the RMD proportionately - this reduces the need to rebalance. Again, if for some reason I wanted to take only from fixed income, I would override the automated set up.
By following your suggestion you are missing the opportunity to keep your RMD invested tax deferred until the end of the year and more importantly the advantage of making only one tax payment in December by having it withheld from your RMD. Why pay taxes early if you don't have to? The IRS accepts a withheld payment as being made throughout the year so there is no penalty. This is a neat little loophole that I am sure the IRS will close someday. Of course if you need the money you don't really have a choice. But if you have some money sitting in a taxable account use that for expenses instead and replenish it with the RMD in December. I don't understand the logic of waiting till December to take the RMD will cause you to forget, get sick etc. Set the December RMD withdrawl up early. Use the same day you currently set up your monthly if you like. Just set it up for one distribution in December. Then you have all year to make changes if necessary.

DarthSage
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Re: Required Minimum Distributions

Post by DarthSage » Sun Jun 02, 2019 11:59 am

We take our RMDs in February of every year. They are taken automatically. You can go nuts trying to figure if beginning or end of year is better, and different people reach different conclusions. In our case, DH has memory issues (due to a learning disability--not because he's old!). If somehow the RMD gets missed, we have time to recover.

Right now, our RMDs are only from inherited IRAs. So, the withdrawal date is DH's late father's birthday. We always take a moment to remember his parents and their generosity in leaving us money, which we use to enrich our family.

Eventually (12 years or so), we're going to have to make some decisions about his and my RMDs. I can see arguments for the same or different distribution dates. If i were going towards the end of the year, I would probably do 10/31, just because it gives time to recover is they get missed. I'm probably way more paranoid about that than I need to be--that's my issue, I'll own it.

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CABob
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Re: Required Minimum Distributions

Post by CABob » Sun Jun 02, 2019 12:49 pm

I have always thought that taking RMD late in the year to take advantage of longer tax deferral was significant but the more I think about it I have become convinced that is is just not a big factor for me. I do like to make some QCD withdrawals so I want to wait with RMD until they have been taken. I do think that the issue of "forgetting" to take the RMD is a factor to consider as well as when I pass to allow my heirs to "catch up". Considering all of this, I have been taking RMD in October or thereabouts. My tax liability is taken from the RMD and the balance goes into a money market fund for later redistribution, re-balancing, etc.
Bob

Dandy
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Re: Required Minimum Distributions

Post by Dandy » Sun Jun 02, 2019 2:16 pm

By following your suggestion you are missing the opportunity to keep your RMD invested tax deferred until the end of the year and more importantly the advantage of making only one tax payment in December by having it withheld from your RMD.
I think you misunderstood my suggestion - I could have worded it better. :oops: Automate the RMD to occur in December rather than wait to initiate it manually each year in December. Once it is set up to automatically go - you can always decide to adjust it but if you forget or get sick it will still happen.

mpnret
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Re: Required Minimum Distributions

Post by mpnret » Sun Jun 02, 2019 2:40 pm

Dandy wrote:
Sun Jun 02, 2019 2:16 pm
By following your suggestion you are missing the opportunity to keep your RMD invested tax deferred until the end of the year and more importantly the advantage of making only one tax payment in December by having it withheld from your RMD.
I think you misunderstood my suggestion - I could have worded it better. :oops: Automate the RMD to occur in December rather than wait to initiate it manually each year in December. Once it is set up to automatically go - you can always decide to adjust it but if you forget or get sick it will still happen.
Got it. Sorry, I guess I was confusing it with all the other posts saying they take RMDs early because they may forget in December when in reality no matter when you take your RMD it has to be set up at sometime. All you really need to do is put in the December date at that time so there really is no waiting or forgeting which is what you were saying.

scrabbler1
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Re: Required Minimum Distributions

Post by scrabbler1 » Sun Jun 02, 2019 4:03 pm

mpnret wrote:
Sat Jun 01, 2019 9:02 am
I wait to December to take my RMD with fed and st taxes withheld. That way money remains invested tax deferred till end of year, no taxes paid till end of year but IRS accepts it as being paid throughout the year being it's withheld. It's easier to determine my tax due when I wait till close to the end of the year plus no messing around with quartley payments.
This is exactly what I do for my friend who has an inherited IRA, and using your same reasoning. He doesn't need the money during the year, so waiting until the end enables him to gain all the benefits you posted.

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celia
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Re: Required Minimum Distributions

Post by celia » Sun Jun 02, 2019 5:02 pm

There is no “best” way to take RMDs. It is different for everyone’s goals and situation. As for us, our goal was to not have to take any since it would push us into a higher tax bracket and we didn’t need the money for living expenses anyway. So we converted most of it in early retirement until DH inherited a tIRA which requires RMDs starting in the year after death and also can’t be converted. So once DH inherited, we started taking big distributions up to the top of our tax bracket.

Once we reached 70.5, those distributions were given to charity via QCDs. Things will be much simpler when those accounts are emptied in a few years.

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fishandgolf
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Re: Required Minimum Distributions

Post by fishandgolf » Sun Jun 02, 2019 5:21 pm

kaneohe wrote:
Sun Jun 02, 2019 8:20 am
fishandgolf wrote:
Sun Jun 02, 2019 7:27 am
22twain wrote:
Sat Jun 01, 2019 9:11 am
...................................................
With Roth conversions it makes a difference because if you pay the tax from funds from your taxable accounts, you can invest all of the converted funds in the Roth IRA and let them continue to grow tax-free. Withholding the tax from the converted funds reduces the amount you can invest in the Roth.

.......................................................
I am a bit confused with 22twain's comments. If you're taking your RMD (distribution) and converting all of it into a Roth IRA and then investing it (assuming into a taxable account), why does it matter if you take the $ from a taxable account to pay the taxes or if you reduce the RMD (distribution) by that same amount. Do you not end up with the same amount in your taxable account(s)? :?
22twain is saying that when converting TIRA distribution to Roth,it is better to pay the taxes from a taxable account than from the TIRA
distribution. That way more ends up in the Roth..........so you end up w/ less in taxable and more in Roth which is more favorable for future growth. As BL points out, you cannot Roth convert an RMD........you can do Roth conversion only after you have withdrawn the RMD to taxable account. An additional distribution after the RMD must be made in order to do a Roth conversion.
Thank you for the detailed explanation! No place better than here to get answers to your financial questions... :sharebeer

RetiredAL
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Re: Required Minimum Distributions

Post by RetiredAL » Sun Jun 02, 2019 5:38 pm

I caution those that want to wait until December to take their RMD. Unexpected things can happen that take time to sort out.

The Story: Last year, my Dad's monthly RMD due 11/30 did not occur. The account had been transition from "managed" to "self" but that got botched up. In spite to phone calls in mid December where it was twice promised they would correct it, nothing happened, thus the 12/30 RMD was also missed. No notices about the RMD's having failed were ever received. Finally this Feb, actual control was given back to us (I'm his POA) and after a manual sale that freed up cash, the RMD's started up again based on the standing 2018 withdrawal order that had been submitted early 2018. The account got botched because their stupid system required the "managing agent" to sign-off on the changing the account to "self" and since that agent was no longer associated with the company, the conversion paperwork just sat someplace. This is on top of the lost POA paperwork fiasco I've previously written about. Do note, they seemed to figure how to get their act together shorty after I had another financial house suck his larger separate IRA way from them.

is50xenough
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Re: Required Minimum Distributions

Post by is50xenough » Mon Jun 03, 2019 5:28 am

midareff wrote:
Sat Jun 01, 2019 8:57 am
At age 71 I still want (and do) to travel and see the parts of the world we haven't gotten to yet so our RMD is used for travel spending. it is drawn 1/12 monthly direct to a bank account where it accumulates along with other travel dedicated funds. EFTPS paid Quarterly IRS estimates are done at the end of the previous year and escrowed in a different interest bearing account along with property tax and car & condo insurances. A couple of clicks to set it up and forget about it until next year. ... all automatic scheduled transactions. Get on with the important business of being retired and forgetaboutit. :sharebeer
Agree strongly with get on with important business. Could this be further simplified by paying taxes out of RMD and SS and eliminating IRS estimated?

DarthSage
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Re: Required Minimum Distributions

Post by DarthSage » Mon Jun 03, 2019 6:22 am

RetiredAL wrote:
Sun Jun 02, 2019 5:38 pm
I caution those that want to wait until December to take their RMD. Unexpected things can happen that take time to sort out.

The Story: Last year, my Dad's monthly RMD due 11/30 did not occur. The account had been transition from "managed" to "self" but that got botched up. In spite to phone calls in mid December where it was twice promised they would correct it, nothing happened, thus the 12/30 RMD was also missed. No notices about the RMD's having failed were ever received. Finally this Feb, actual control was given back to us (I'm his POA) and after a manual sale that freed up cash, the RMD's started up again based on the standing 2018 withdrawal order that had been submitted early 2018. The account got botched because their stupid system required the "managing agent" to sign-off on the changing the account to "self" and since that agent was no longer associated with the company, the conversion paperwork just sat someplace. This is on top of the lost POA paperwork fiasco I've previously written about. Do note, they seemed to figure how to get their act together shorty after I had another financial house suck his larger separate IRA way from them.
This, exactly, is why I prefer an RMD withdrawal towards the beginning of the year. You can set it up on autopilot and have an expectation that things will go right, but you need to have a little wiggle room in case they don't.

Another note: Make sure your heirs know about your RMD distribution schedule. We were fortunate--MIL died in July 2017, we had time to recognize that she hadn't done her 2017 RMDs, and the estate took them in plenty of time. There have been posts on this forum of people who lose a relative in Dec., no RMDs have been taken for that year, and they have to scramble to get it done in time, while dealing with funeral plans and grief and all the other stressors of losing a loved one.

RetiredAL
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Re: Required Minimum Distributions

Post by RetiredAL » Mon Jun 03, 2019 11:41 pm

DarthSage wrote:
Mon Jun 03, 2019 6:22 am


Another note: Make sure your heirs know about your RMD distribution schedule. We were fortunate--MIL died in July 2017, we had time to recognize that she hadn't done her 2017 RMDs, and the estate took them in plenty of time. There have been posts on this forum of people who lose a relative in Dec., no RMDs have been taken for that year, and they have to scramble to get it done in time, while dealing with funeral plans and grief and all the other stressors of losing a loved one.
Another good reason to not wait until the last moment.

RetiredAL
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Re: Required Minimum Distributions

Post by RetiredAL » Mon Jun 03, 2019 11:59 pm

DarthSage wrote:
Mon Jun 03, 2019 6:22 am

Another note: Make sure your heirs know about your RMD distribution schedule. We were fortunate--MIL died in July 2017, we had time to recognize that she hadn't done her 2017 RMDs, and the estate took them in plenty of time. There have been posts on this forum of people who lose a relative in Dec., no RMDs have been taken for that year, and they have to scramble to get it done in time, while dealing with funeral plans and grief and all the other stressors of losing a loved one.
That bring up a concern I had not previously thought about. When the beneficiary is not the spouse, but other real people, how do the RMD's get taken as the IRA now belongs to one or more beneficiaries, not to the decedent's estate. In my case, my sister and I are the beneficiaries. Do we each withdraw our portion of the RMD amount from our new formed Inherited Ira Accounts but the estate pays the taxes. Expert advice would be appreciated.

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GerryL
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Re: Required Minimum Distributions

Post by GerryL » Tue Jun 04, 2019 12:25 am

My plan (which I'm just now beginning to execute on): Do QCDs in first half of year. Then some time during second half take the remainder of the RMD with state and fed taxes withheld. I don't need RMDs for living expenses, and by the end of the year I will have a better idea of how much I want to reinvest and how much I want to set aside for next year's travel budget.

I was so excited when I learned that I could use the safe harbor rule to calculate the minimum amount of tax I need to have withheld and that I don't have to run a lot of numbers to figure out my actual taxes for the current year. This year -- the first full year of SS and first year of RMDs -- my tax bill is going to shoot way up (from around $0), so I will aim to have much more than the minimum withheld.

heyyou
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Re: Required Minimum Distributions

Post by heyyou » Tue Jun 04, 2019 1:13 am

Waiting until December to do RMDs has risk of missing it due to life problems. (I missed an annual Roth conversion when my spouse was diagnosed with lung cancer, just after Thanksgiving.) The advantage is an investor receives cap-gains and dividends on Dec.10 for precisely knowing your taxes for the year, but the mutual fund providers are swamped with many transactions that all must be completed before year end.

Start early for your first few annual RMDs, then wait longer when you are more familiar with the process.

On many IRA fund withdrawal forms, there is a line asking about directing some of the withdrawal (WD) to withholding (WH) taxes. The good news is than any WH tax that the IRS receives from your fund provider during that year, the IRS thinks that it was paid in, on time for that year. You can delay paying your estimated taxes due quarterly, by doing an IRA WD late in the year (or any time during the year) that directs the correct WH tax amount to the IRS. Previous posters have mentioned the sequence of RMDs and the delayed estimated tax method.

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celia
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Re: Required Minimum Distributions

Post by celia » Tue Jun 04, 2019 2:35 am

RetiredAL wrote:
Mon Jun 03, 2019 11:59 pm
That bring up a concern I had not previously thought about. When the beneficiary is not the spouse, but other real people, how do the RMD's get taken as the IRA now belongs to one or more beneficiaries, not to the decedent's estate. In my case, my sister and I are the beneficiaries. Do we each withdraw our portion of the RMD amount from our new formed Inherited Ira Accounts but the estate pays the taxes. Expert advice would be appreciated.
If the original IRA was split into multiple Inherited IRAs, you each will take your own RMD starting in the year after death (assuming the deceased had already taken the RMD that was due for the year of death). If they hadn't taken their RMD, their custodian usually requires that it be removed before the account is split. Your RMD will be based on the year of your birth along with the ending account value for the previous year. Note that the per cent required to be withdraw each year uses a different table than if it was your own IRA. See Table I at the end of IRS Publication 590-B.

Once you own an Inherited IRA, the amount you withdraw will be reported on a tax form at the end of the year. You will include the information on your personal income tax return as you are liable for the tax increase due to the RMD. Think of it as another income stream you need to report each year.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

DarthSage
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Re: Required Minimum Distributions

Post by DarthSage » Tue Jun 04, 2019 6:01 am

celia wrote:
Tue Jun 04, 2019 2:35 am
RetiredAL wrote:
Mon Jun 03, 2019 11:59 pm
That bring up a concern I had not previously thought about. When the beneficiary is not the spouse, but other real people, how do the RMD's get taken as the IRA now belongs to one or more beneficiaries, not to the decedent's estate. In my case, my sister and I are the beneficiaries. Do we each withdraw our portion of the RMD amount from our new formed Inherited Ira Accounts but the estate pays the taxes. Expert advice would be appreciated.
If the original IRA was split into multiple Inherited IRAs, you each will take your own RMD starting in the year after death (assuming the deceased had already taken the RMD that was due for the year of death). If they hadn't taken their RMD, their custodian usually requires that it be removed before the account is split. Your RMD will be based on the year of your birth along with the ending account value for the previous year. Note that the per cent required to be withdraw each year uses a different table than if it was your own IRA. See Table I at the end of IRS Publication 590-B.

Once you own an Inherited IRA, the amount you withdraw will be reported on a tax form at the end of the year. You will include the information on your personal income tax return as you are liable for the tax increase due to the RMD. Think of it as another income stream you need to report each year.
This is exactly how it worked for us.

Keep in mind, a typical Boglehead-type estate is going to have a lot of moving parts. It's not like on TV, where beneficiaries visit the lawyer right after the funeral and get a check. Stuff comes in piecemeal--typically, insurance proceeds first (assuming no issues with the death), then other stuff here and there. In our case, accounts had to be split, bills paid, death certificates provided, tax returns filed (final one for the decedent, then the estate also needs to file one). It's easy for a logic-minded person to think about how to do things in the most efficient manner, but it's not so easy to actually accomplish that when dealing with an estate.

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Re: Required Minimum Distributions

Post by Ron » Tue Jun 04, 2019 9:28 am

We're only into the second year of RMD's, but we also are ones to play it safe and take them in January of the year.

RMD's are known after the year closes on December 31st (or the last business day). Our RMD amounts are confirmed by the first business day of the new year by our investment firms, and we will submit our RMD requests (VG/FIDO) within the first week of the new year.

Our respective RMD's are used to pay taxes on the RMD, pay taxes on all our other retirement income for the current year (e.g. SS, pensions, SPIA, taxable savings, etc.) with the remainder being put into savings for "extras" in the new year. We don't reinvest RMD's into taxable funds; we spent decades saving/investing for our "golden years", so we decided to spend some of the gold 8-) . We do not have FIT taken out of any of our retirement taxable income sources during the year.

Since our RMD's are fully funded by fund distributions - with the vast majority coming in December of the previous year, we don't worry if the market is up or down (as it was last December) when we execute our RMD's. As far as not having funds in the market until the end of the year, we're willing to give up a bit of gains (in our case, it would only be MM interest since we're conservative in those funds we will need to use within a year) and not have to worry about those "life happens" events where our respective RMD's may be forgotten about.

The KISS technique works for us, FWIW.

- Ron

tenkuky
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Re: Required Minimum Distributions

Post by tenkuky » Tue Jun 04, 2019 9:32 am

Ron wrote:
Tue Jun 04, 2019 9:28 am

Since our RMD's are fully funded by fund distributions - with the vast majority coming in December of the previous year, we don't worry if the market is up or down (as it was last December) when we execute our RMD's.
- Ron
Ron:
Are you saying that basically whatever distributions spin off the investments is the only amount you take as RMDs? No selling underlying funds?
That would mean (when the time comes) I need to cancel automatic reinvestment in pretax accounts and have it as cash.
Am I understanding this right?
Makes sense about not worrying about timing if you do it this way.

T

Ron
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Re: Required Minimum Distributions

Post by Ron » Tue Jun 04, 2019 9:50 am

tenkuky wrote:
Tue Jun 04, 2019 9:32 am
Ron wrote:
Tue Jun 04, 2019 9:28 am

Since our RMD's are fully funded by fund distributions - with the vast majority coming in December of the previous year, we don't worry if the market is up or down (as it was last December) when we execute our RMD's.
- Ron
Ron:
Are you saying that basically whatever distributions spin off the investments is the only amount you take as RMDs? No selling underlying funds?
That would mean (when the time comes) I need to cancel automatic reinvestment in pretax accounts and have it as cash.
Am I understanding this right?
Makes sense about not worrying about timing if you do it this way.

T
That is correct. We're fortunate that our TIRA funds fully cover (and then some) our respective RMD's. We do not sell any fund shares to cover RMD's, RMD taxes, nor taxes on all our other retirement income other than those shares shown as cash holdings, funded by distributions/cap gains.

It's much easier than watching the market and making decisions throughout the year on when to sell/buy to cover expenses (including RMD's). I had too much of that from age 59 until I turned 70 (and started claiming age-70 SS along with my wife) when my portfolio covered the great majority of my retirement expenses. We turned off reinvesting of distributions/cap gains on all our TIRA holdings when we each started our age-70 SS.

While we are not strictly income investors, it turned out to be just that at the current time. Of course, things may change as we age and the RMD % grows, but we'll face that when the time comes if we're still alive.

BTW, we don't draw any funds from our respective Roth holdings; those are allocated to our estate for other uses after we're both gone. We reinvest all distributions/cap gains in those holdings.

- Ron

RetiredAL
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Re: Required Minimum Distributions

Post by RetiredAL » Tue Jun 04, 2019 11:54 am

celia wrote:
Tue Jun 04, 2019 2:35 am
RetiredAL wrote:
Mon Jun 03, 2019 11:59 pm
That bring up a concern I had not previously thought about. When the beneficiary is not the spouse, but other real people, how do the RMD's get taken as the IRA now belongs to one or more beneficiaries, not to the decedent's estate. In my case, my sister and I are the beneficiaries. Do we each withdraw our portion of the RMD amount from our new formed Inherited Ira Accounts but the estate pays the taxes. Expert advice would be appreciated.
If the original IRA was split into multiple Inherited IRAs, you each will take your own RMD starting in the year after death (assuming the deceased had already taken the RMD that was due for the year of death). If they hadn't taken their RMD, their custodian usually requires that it be removed before the account is split. Your RMD will be based on the year of your birth along with the ending account value for the previous year. Note that the per cent required to be withdraw each year uses a different table than if it was your own IRA. See Table I at the end of IRS Publication 590-B.

Once you own an Inherited IRA, the amount you withdraw will be reported on a tax form at the end of the year. You will include the information on your personal income tax return as you are liable for the tax increase due to the RMD. Think of it as another income stream you need to report each year.
Thank you Celia. That makes sense that the custodian would just do it before performing a split. In my case, I could not imagine my sister would be balk at paying it, but there are sure a lot of posts here about bickering siblings.

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Re: Required Minimum Distributions

Post by The Wizard » Tue Jun 04, 2019 12:43 pm

Ron wrote:
Tue Jun 04, 2019 9:28 am
...Since our RMD's are fully funded by fund distributions - with the vast majority coming in December of the previous year...
Hmm, stock fund dividends are around 2% per year right now.
And I'm not up to speed on bond funds but aren't they around 3% per year?
So I don't see how you get close to 4% from those dividends...
Attempted new signature...

Ron
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Re: Required Minimum Distributions

Post by Ron » Tue Jun 04, 2019 1:33 pm

The Wizard wrote:
Tue Jun 04, 2019 12:43 pm
Ron wrote:
Tue Jun 04, 2019 9:28 am
...Since our RMD's are fully funded by fund distributions - with the vast majority coming in December of the previous year...
Hmm, stock fund dividends are around 2% per year right now.
And I'm not up to speed on bond funds but aren't they around 3% per year?
So I don't see how you get close to 4% from those dividends...
The factor for age 70 (our age, last year) is 27.4, or 3.65%. Our combined distributions/cap gains last year were in excess of that 3.65%, even though we don't strictly invest for income.

Our combined distributions/cap gains beat the average for the S&P over the last five years https://www.multpl.com/s-p-500-dividend ... le/by-year since we started keeping records on that factor of our investments.

We're fortunate to have distributions in excess of the norm - at least in the current half-decade. As for the future? Who knows.

- Ron

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Re: Required Minimum Distributions

Post by kaneohe » Tue Jun 04, 2019 1:38 pm

The Wizard wrote:
Tue Jun 04, 2019 12:43 pm
Ron wrote:
Tue Jun 04, 2019 9:28 am
...Since our RMD's are fully funded by fund distributions - with the vast majority coming in December of the previous year...
Hmm, stock fund dividends are around 2% per year right now.
And I'm not up to speed on bond funds but aren't they around 3% per year?
So I don't see how you get close to 4% from those dividends...
perhaps these aren't the efficient funds you're thinking about and distribute more than what you thinking about?

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Re: Required Minimum Distributions

Post by Sidney » Tue Jun 04, 2019 1:43 pm

Ron wrote:
Tue Jun 04, 2019 1:33 pm
Our combined distributions/cap gains beat the average for the S&P over the last five years https://www.multpl.com/s-p-500-dividend ... le/by-year since we started keeping records on that factor of our investments.
How did it do vs. indexes on total return?
I always wanted to be a procrastinator.

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Re: Required Minimum Distributions

Post by Alan S. » Tue Jun 04, 2019 8:13 pm

RetiredAL wrote:
Mon Jun 03, 2019 11:59 pm
DarthSage wrote:
Mon Jun 03, 2019 6:22 am

Another note: Make sure your heirs know about your RMD distribution schedule. We were fortunate--MIL died in July 2017, we had time to recognize that she hadn't done her 2017 RMDs, and the estate took them in plenty of time. There have been posts on this forum of people who lose a relative in Dec., no RMDs have been taken for that year, and they have to scramble to get it done in time, while dealing with funeral plans and grief and all the other stressors of losing a loved one.
That bring up a concern I had not previously thought about. When the beneficiary is not the spouse, but other real people, how do the RMD's get taken as the IRA now belongs to one or more beneficiaries, not to the decedent's estate. In my case, my sister and I are the beneficiaries. Do we each withdraw our portion of the RMD amount from our new formed Inherited Ira Accounts but the estate pays the taxes. Expert advice would be appreciated.
Beneficiaries who inherit IRAs late in the year should not stress out over the status of the year of death RMD. There are typically other issues more pressing. The IRS almost expects these to be late and will always waive the penalty with a properly filed 5329 indicating the reasonable cause for the delay. They accept about anything as reasonable.

IRAs should not be left to the estate barring a very unusual estate situation such having no individuals to inherit and insufficient cash to pay final expenses. When there are individual beneficiaries, they become jointly responsible for completing the year of death RMD and no distributions of any kind can be taken until separate accounts are created for the beneficiaries. If there are multiple individual beneficiaries they can split up the year of death RMD in any portions they wish. Each beneficiary must report taxable income for the amount they receive.

If the estate is the beneficiary of the IRA, but there is a will or intestate provisions determining who will inherit, it is preferable to take no distributions from the IRA until the executor can assign the inherited IRA out of the estate to the estate beneficiaries. These beneficiaries can then complete the year of death RMD and they will each get their own 1099R. If this does not happen until the year after death, a 5329 must be filed to request the penalty waiver. This avoid having to pass an IRA distribution through the estate to those beneficiaries or worse yet having to pay the much higher estate tax rates if the distributions are not passed through to beneficiaries.

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celia
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Re: Required Minimum Distributions

Post by celia » Wed Jun 05, 2019 7:30 pm

Ron wrote:
Tue Jun 04, 2019 9:50 am
tenkuky wrote:
Tue Jun 04, 2019 9:32 am
Ron:
Are you saying that basically whatever distributions spin off the investments is the only amount you take as RMDs? No selling underlying funds?
That would mean (when the time comes) I need to cancel automatic reinvestment in pretax accounts and have it as cash.
Am I understanding this right?
Makes sense about not worrying about timing if you do it this way.
That is correct. We're fortunate that our TIRA funds fully cover (and then some) our respective RMD's. We do not sell any fund shares to cover RMD's, RMD taxes, nor taxes on all our other retirement income other than those shares shown as cash holdings, funded by distributions/cap gains.
Tenkuky, If you are asking if the growth in the TIRA is the RMD, that is NOT correct. The distributions from the assets in the TIRA have nothing to do with the RMD. For example, if the TIRA is 100% cash (ie, the value doesn't change during the year), you will still have to take an RMD based on the account's Dec. 31 value and your divisor (which is based on your birth year). On the other extreme, if the account throws off dividends of 50%, your RMD is still based on the account's Dec. 31 value and your divisor (which is based on your birth year).

In Ron's case, he may be earning distributions that are a little more than the RMD, but that is only a coincidence. And even if he only has to remove 4% or 5% each year, in another decade he may be removing 15% or 20% because the percentage to remove each year, increases each year. A beneficiary's personal divisor will originally be based on their age in the year after death, then increase each year. Multiple beneficiaries of the same deceased will each have their own withdrawal rates. If you inherit another TIRA in another year, that TIRA will also start over with a different withdrawal rate each year.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

muddlehead
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Re: Required Minimum Distributions

Post by muddlehead » Wed Jun 05, 2019 7:38 pm

Y'all are confusing me. If you have to take out the RMD in the year you turn 70 1/2, why the heck wouldn't you take it Jan 2nd in that particular year? And not pay the tax in the associated income tax gain for 15 months?

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