Best month to take RMDs?

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fourwheelcycle
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Best month to take RMDs?

Post by fourwheelcycle » Wed Nov 06, 2019 10:38 am

Last year I started my RMDs and took them the month I turned 70.5. This year my wife started her RMDs and we both took them the month she turned 70.5 - I hate to wrap my brain around RMDs more than once each year.

Next year we can take our RMDs whenever we want to. I would like to take them at the DJIA "high tide" every year, but following BH advice I do not want to rely on my vast proven expertise to time the market. It occurred to me our next best strategy would be to take our RMDs during the month that has had the highest average DJIA value over all past years since 1950, or perhaps since 1990.

I searched the web, and this forum, to identify which month of the year has had the highest average DJIA value over all past years or over a specified range of years, but I could not find the answer. I bet the answer is out there, and I am hoping someone on this forum can tell me how to find it.

aerosurfer
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Re: Best month to take RMDs?

Post by aerosurfer » Wed Nov 06, 2019 10:51 am

"Sell in May and Go Away"

That advice will never be more than 11/12ths incorrect, but I challenge you to a better Jingle.

Otherwise you are specifically asking for historical market timing, to base future results on.

Have your allocations set, and take the RMD based on your yearly budget and needs of that year

bryanm
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Re: Best month to take RMDs?

Post by bryanm » Wed Nov 06, 2019 10:54 am

aerosurfer wrote:
Wed Nov 06, 2019 10:51 am
"Sell in May and Go Away"

That advice will never be more than 11/12ths incorrect, but I challenge you to a better Jingle.
"Sell in July while the market is high"

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celia
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Re: Best month to take RMDs?

Post by celia » Wed Nov 06, 2019 11:00 am

I would take them early in the year so I could have the rest of the year to do Roth conversions. (The RMD must be removed before doing conversions 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.

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Re: Best month to take RMDs?

Post by Stinky » Wed Nov 06, 2019 11:06 am

fourwheelcycle wrote:
Wed Nov 06, 2019 10:38 am
Last year I started my RMDs and took them the month I turned 70.5. This year my wife started her RMDs and we both took them the month she turned 70.5 - I hate to wrap my brain around RMDs more than once each year.
Is there any particular reason that you waited until the month that you turned 70.5? I thought the first RMD had to be done in the year that you turn 70.5, but no particular need to wait until you reach that age.

I think that many BHs would say to leave the money in the market as long as possible, which implies a 4th quarter withdrawal. On the other hand, for purely budgeting and cashflow reasons, I plan to take 1/12 of the RMD each month.
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Re: Best month to take RMDs?

Post by oxothuk » Wed Nov 06, 2019 11:12 am

Stinky wrote:
Wed Nov 06, 2019 11:06 am

Is there any particular reason that you waited until the month that you turned 70.5? I thought the first RMD had to be done in the year that you turn 70.5, but no particular need to wait until you reach that age.
Only reason would be if you are doing QCDs to satisfy the RMD requirement. In that case you DO need to wait until you are 70.5

Goal33
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Re: Best month to take RMDs?

Post by Goal33 » Wed Nov 06, 2019 11:13 am

I’m 28, and if I live long enough to take RMDs, I’d just take them in January to get that errand over with.
A man with one watch always knows what time it is; a man with two watches is never sure.

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Re: Best month to take RMDs?

Post by sport » Wed Nov 06, 2019 11:15 am

Taking the RMD and selling equities are not the same thing. You can move IRA holdings from equities to bonds (or even a money market fund) within the IRA any time you wish. When you take the RMD is independent of this. I make my charitable QCD distributions through out the year. I then take the remaining part of my RMD in early November. If you take your RMD at the beginning of the year, you lose the ability to take the best advantage of QCDs.

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Re: Best month to take RMDs?

Post by gr7070 » Wed Nov 06, 2019 11:23 am

If there was an obvious month for market timing wouldn't this be grotesquely exploited already? Just pick one; based upon the other recommendations.
bryanm wrote:
Wed Nov 06, 2019 10:54 am
aerosurfer wrote:
Wed Nov 06, 2019 10:51 am
"Sell in May and Go Away"

That advice will never be more than 11/12ths incorrect, but I challenge you to a better Jingle.
"Sell in July while the market is high"
Sell in August, May? Maybe it's November or December; shoot I can never remember.
Last edited by gr7070 on Wed Nov 06, 2019 12:04 pm, edited 1 time in total.

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marti038
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Re: Best month to take RMDs?

Post by marti038 » Wed Nov 06, 2019 11:29 am

If reinvesting, wouldn't it be most advantageous to pull them out in January so they can grow in a roth tax free for the rest of the year instead of growing more RMD's for next year in the account they're already in?

Don't forget about Qualified Charitable Distributions. I don't have to worry about RMD's for years, but when I do I imagine I'll do most charitable giving that way.

Best of luck.

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Re: Best month to take RMDs?

Post by BolderBoy » Wed Nov 06, 2019 11:36 am

Stinky wrote:
Wed Nov 06, 2019 11:06 am
I thought the first RMD had to be done in the year that you turn 70.5 ...
I think it has to be done the year after the year in which you turn 70.5. But if you wait until that year, you have to take two RMDs. Probably wiser to take the first RMD in the year you turn 70.5.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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Watty
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Re: Best month to take RMDs?

Post by Watty » Wed Nov 06, 2019 11:46 am

One thing to consider is that if you have not taken the RMD for that year in the year you die then your heirs will need to figure that all out and take the RMD that you should have taken. There can be complexities like if the IRA is being split between multiple people or if a spouse is elderly and might not be very financially capable. There have been many posts by frustrated people who either did not realize this and did not go it, or they are having a hard time figuring out the details of how to do this right.

As a general rule;

1) If you like your heirs then do the RMD early in the year so there is less chance that they will have to deal with this.

2) If you do not like your heirs then do the RMD as late as possible to increase the odds that they go crazy figuring this out. :D


Doing them early in the year will also allow you plenty of time to fix things if there is a problem or you forget to do it.

I would avoid doing them late in December since that would leave you little time to fix any problems.

I do not plan on making the qualified charitable distributions that another poster mentioned so I will likely schedule mine to be automatically done on January 10th of each year. That will give me over a week cancel it if I need to and there is only a small chance that I will die before it is taken.

That also will mean that the RMD should be done by the time I am doing my taxes so I will likely remember to check on the RMD when I am doing my taxes and thinking about money.

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Re: Best month to take RMDs?

Post by Nowizard » Wed Nov 06, 2019 11:59 am

If you are investing rather than depending on the RMD's for expenses, you have greater time for investing the sooner you take the distributions.

Tim

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Re: Best month to take RMDs?

Post by MN-Investor » Wed Nov 06, 2019 12:00 pm

I'm not 70-1/2 yet, but I have an inherited IRA from which I take RMD's.

I take one yearly distribution on November 1. I figure that by that date I have an idea of what my income will be for the year so that I can have taxes withheld from the RMD and avoid paying estimated taxes. The IRS views w/h taxes as paid equally over the year so you can avoid a penalty by using RMD tax withholding as opposed to making late in the year estimated tax payments.

I went with an early November distribution because late November and December can be so busy with Thanksgiving / Christmas activities that reviewing taxable income for the year and revising the taxes to be withheld can be easily overlooked.
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Re: Best month to take RMDs?

Post by RadAudit » Wed Nov 06, 2019 12:06 pm

You do know the answer depends on personal situations and preferences, don't you?
Watty wrote:
Wed Nov 06, 2019 11:46 am
If you do not like your heirs then do the RMD as late as possible to increase the odds that they go crazy figuring this out.
I'm sure my heirs will have enough to gripe about me when I'm gone - so might as well add one more log on the fire. :happy
marti038 wrote:
Wed Nov 06, 2019 11:29 am
Don't forget about Qualified Charitable Distributions. ... I imagine I'll do most charitable giving that way.
Actually, a good point. Reduces income taxes, too.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

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Re: Best month to take RMDs?

Post by bertilak » Wed Nov 06, 2019 12:06 pm

fourwheelcycle wrote:
Wed Nov 06, 2019 10:38 am
I hate to wrap my brain around RMDs more than once each year.
I do it in January just so I can forget about it. I don't worry about maximizing returns because I am simply going to reinvest the RMD.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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Re: Best month to take RMDs?

Post by sport » Wed Nov 06, 2019 12:13 pm

BolderBoy wrote:
Wed Nov 06, 2019 11:36 am
Stinky wrote:
Wed Nov 06, 2019 11:06 am
I thought the first RMD had to be done in the year that you turn 70.5 ...
I think it has to be done the year after the year in which you turn 70.5. But if you wait until that year, you have to take two RMDs. Probably wiser to take the first RMD in the year you turn 70.5.
The first year RMD must be taken by April 1 in the year following your 70.5 year. All succeeding RMDs must be taken by Dec 31.

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UpsetRaptor
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Re: Best month to take RMDs?

Post by UpsetRaptor » Wed Nov 06, 2019 12:26 pm

Personal preference, if just re-investing and/or doing a QCD with it.

For me, younger and still working while having a RMD on an inherited IRA, I do late November because that gives it more time in the market to grow each year. Then I use the RMD money for the annual extra Christmas expenses, with what's left over helping to lump sum Roth IRA in January.

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Re: Best month to take RMDs?

Post by Whatyear? » Wed Nov 06, 2019 12:37 pm

Goal33 wrote:
Wed Nov 06, 2019 11:13 am
I’m 28, and if I live long enough to take RMDs, I’d just take them in January to get that errand over with.
I like this advice. You know you have to take it at some point during each year. Why overthink it?

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fourwheelcycle
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Re: Best month to take RMDs?

Post by fourwheelcycle » Wed Nov 06, 2019 12:50 pm

This thread proves you can always count on BHs to provide a diversity of advice!

Several people pointed out picking a single month is still timing the market - I agree. Several people pointed out, with humorous jingles, there is no best month - I agree with them too. No one actually answered my question about how to identify the the month with the highest average DJIA value over all past years, or over a specified range of past years. Although no month can be assured as the best for market timing, I am sure my question would lead to one specific month over all past years, or a different specific month over each specified range of past years.

My wife and I did time our first RMDs to meet the age 70.5 requirement for our first QCDs. As it turns out, we do not have any budget needs that might point toward when we should take our RMDs each year. I realize we could sell equities in our IRAs anytime and then take our RMDs from our IRA settlement accounts or bond funds, but picking a time to sell our equities still seems like market timing. Actually, we do keep a 25% balance of bonds in our IRAs, so we can take our RMDs from bonds if the market is down during the month we ultimately aim for to take our RMDs.

In general, I would prefer to take our RMDs in January and be done with it, since that would give funds to our QCD charities earlier in the year. But since the market (historically) goes up each year, taking our RMDs in December would make our next year's RMDs bigger, providing bigger QCDs for our charities.

Maybe early July is our best bet.

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Re: Best month to take RMDs?

Post by dodecahedron » Wed Nov 06, 2019 1:17 pm

marti038 wrote:
Wed Nov 06, 2019 11:29 am
If reinvesting, wouldn't it be most advantageous to pull them out in January so they can grow in a roth tax free for the rest of the year instead of growing more RMD's for next year in the account they're already in?
RMDs are not eligible for Roth conversion so your RMDs will generally NOT be growing tax free in a Roth.

In general, unneeded RMDs go into a taxable account.

To the extent that the taxpayer and/or spouse have earned income in a given calendar year, Roth contributions could be made from any source (including RMDs, limited to $7K each including catchup.)

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Re: Best month to take RMDs?

Post by JackoC » Wed Nov 06, 2019 4:24 pm

If you stick to any significant degree to efficient market theory* and assume even and constant taxation, the answer is late December: the longer you invest money the more it will return. And the longer that return is tax deferred the better off you will be. It's the same reason you would not generally take the next 5 yr's worth of RMD's this year, even if that wouldn't push you into a higher tax bracket this year.

Particular tax quirks could reverse the advantage of tax deferral. For example it's possible for the basis step up at death to make it more advantageous to have 'taxable' growth than 'tax deferred' growth if the 'taxable' unrealized cg's will never be realized by anyone, assuming the assets generate little dividend or interest income. Or, if you know tax rates will go up you might want to take assets from tax deferred accounts early. But in either case earlier is better, earlier month or earlier year. Generally later is better, RMD in the last month of the latest possible year**.

*and generally if you look at empirical history. The high point of the SP500TR index (ie total return, including reinvested dividends) was in December in 16 of the 31 yrs 1988-2018, data I happened to have lying around to manipulate. Sep and Oct were tied for second at 3 times each.
**tIRA>Roth conversion isn't going from tax deferred to taxable, but would generally also reverse the direction of favorable timing slightly. A nominal $100k in a tiRA with 30% tax rate is really $70k of your money growing tax free. When converted to Roth it's also $70k of your money growing tax free, once the taxes are paid, but you earn more interest on the $30k due in taxes till you actually pay them if you do the conversion early in the year.
Last edited by JackoC on Wed Nov 06, 2019 4:34 pm, edited 1 time in total.

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Re: Best month to take RMDs?

Post by sport » Wed Nov 06, 2019 4:29 pm

JackoC wrote:
Wed Nov 06, 2019 4:24 pm
It's the same reason you would not generally take the next 5 yr's worth of RMD's this year, even if that wouldn't push you into a higher tax bracket this year.
This is not allowed, even if you want to. RMDs must be taken each year. Of course you can always withdraw more than the RMD in any year, but it won't count towards future year RMDs.

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Re: Best month to take RMDs?

Post by UpsetRaptor » Wed Nov 06, 2019 4:29 pm

fourwheelcycle wrote:
Wed Nov 06, 2019 12:50 pm
No one actually answered my question about how to identify the the month with the highest average DJIA value over all past years, or over a specified range of past years. Although no month can be assured as the best for market timing, I am sure my question would lead to one specific month over all past years, or a different specific month over each specified range of past years.
Time in the market > timing the market. Over the long run, with enough years to smooth out variability, the theoretically optimal date to take your RMD each year would be 12/31.

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Re: Best month to take RMDs?

Post by JackoC » Wed Nov 06, 2019 4:36 pm

sport wrote:
Wed Nov 06, 2019 4:29 pm
JackoC wrote:
Wed Nov 06, 2019 4:24 pm
It's the same reason you would not generally take the next 5 yr's worth of RMD's this year, even if that wouldn't push you into a higher tax bracket this year.
This is not allowed, even if you want to. RMDs must be taken each year. Of course you can always withdraw more than the RMD in any year, but it won't count towards future year RMDs.
I meant the amount, just illustrating that one would not do this even if it were allowed because you're robbing yourself of tax deferred return, the same reason that RMD's should be taken in late December of a given year if trying to maximize one's investments. Under the assumptions and exceptions given in prior post.
Last edited by JackoC on Wed Nov 06, 2019 4:38 pm, edited 1 time in total.

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Re: Best month to take RMDs?

Post by bertilak » Wed Nov 06, 2019 4:38 pm

UpsetRaptor wrote:
Wed Nov 06, 2019 4:29 pm
fourwheelcycle wrote:
Wed Nov 06, 2019 12:50 pm
No one actually answered my question about how to identify the the month with the highest average DJIA value over all past years, or over a specified range of past years. Although no month can be assured as the best for market timing, I am sure my question would lead to one specific month over all past years, or a different specific month over each specified range of past years.
Time in the market > timing the market. Over the long run, with enough years to smooth out variability, the theoretically optimal date to take your RMD each year would be 12/31.
If you reinvest the money it doesn't matter when you take the RMD.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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Re: Best month to take RMDs?

Post by Chadnudj » Wed Nov 06, 2019 4:39 pm

bryanm wrote:
Wed Nov 06, 2019 10:54 am
aerosurfer wrote:
Wed Nov 06, 2019 10:51 am
"Sell in May and Go Away"

That advice will never be more than 11/12ths incorrect, but I challenge you to a better Jingle.
"Sell in July while the market is high"
"Sell in December when it's closer to the end-er."

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Re: Best month to take RMDs?

Post by JackoC » Wed Nov 06, 2019 4:46 pm

delete

sport
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Re: Best month to take RMDs?

Post by sport » Wed Nov 06, 2019 4:57 pm

bertilak wrote:
Wed Nov 06, 2019 4:38 pm
UpsetRaptor wrote:
Wed Nov 06, 2019 4:29 pm
fourwheelcycle wrote:
Wed Nov 06, 2019 12:50 pm
No one actually answered my question about how to identify the the month with the highest average DJIA value over all past years, or over a specified range of past years. Although no month can be assured as the best for market timing, I am sure my question would lead to one specific month over all past years, or a different specific month over each specified range of past years.
Time in the market > timing the market. Over the long run, with enough years to smooth out variability, the theoretically optimal date to take your RMD each year would be 12/31.
If you reinvest the money it doesn't matter when you take the RMD.
Many (most?) people have income taxes withheld from their RMD. Of course, the amount withheld cannot be reinvested.

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Re: Best month to take RMDs?

Post by UpsetRaptor » Wed Nov 06, 2019 5:29 pm

bertilak wrote:
Wed Nov 06, 2019 4:38 pm
UpsetRaptor wrote:
Wed Nov 06, 2019 4:29 pm
fourwheelcycle wrote:
Wed Nov 06, 2019 12:50 pm
No one actually answered my question about how to identify the the month with the highest average DJIA value over all past years, or over a specified range of past years. Although no month can be assured as the best for market timing, I am sure my question would lead to one specific month over all past years, or a different specific month over each specified range of past years.
Time in the market > timing the market. Over the long run, with enough years to smooth out variability, the theoretically optimal date to take your RMD each year would be 12/31.
If you reinvest the money it doesn't matter when you take the RMD.
True, if you're re-investing (I was assuming that's not what OP was asking), and assuming the tax rate on ordinary income is the same as the tax rate on capital gains for that individual, then it's theoretically mathematically the same whenever you did it in the year, and regardless of the month and whether DJIA is at high or low tide at that point. If the tax rates on ordinary income and capital gains differ, then it can get complicated, but really the differences usually become trivial. So back to personal preference either way, really.

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Re: Best month to take RMDs?

Post by neilpilot » Wed Nov 06, 2019 5:32 pm

bertilak wrote:
Wed Nov 06, 2019 4:38 pm

If you reinvest the money it doesn't matter when you take the RMD.
Forgetting capital appreciation for simplification, say your RMD is earning x% in dividends. If you take the RMD in January then most of the dividends will be taxed. If you delay the RMD until end of year, most dividends remain tax deferred.

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Re: Best month to take RMDs?

Post by bertilak » Wed Nov 06, 2019 5:42 pm

neilpilot wrote:
Wed Nov 06, 2019 5:32 pm
bertilak wrote:
Wed Nov 06, 2019 4:38 pm

If you reinvest the money it doesn't matter when you take the RMD.
Forgetting capital appreciation for simplification, say your RMD is earning x% in dividends. If you take the RMD in January then most of the dividends will be taxed. If you delay the RMD until end of year, most dividends remain tax deferred.
Tax deferred until you take next year's RMD when it is taxed as income anyway. Any extra dividends (or cap gains, for that matter) you get to keep in the IRA simply make next year's RMD (and the taxes you pay) just that much higher. As far as taxes go, they get you one way or the other.
Last edited by bertilak on Wed Nov 06, 2019 5:51 pm, edited 1 time in total.
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Re: Best month to take RMDs?

Post by Workable Goblin » Wed Nov 06, 2019 5:51 pm

neilpilot wrote:
Wed Nov 06, 2019 5:32 pm
Forgetting capital appreciation for simplification, say your RMD is earning x% in dividends. If you take the RMD in January then most of the dividends will be taxed. If you delay the RMD until end of year, most dividends remain tax deferred.
Assuming that your funds don't pay out most of their dividends at the end of the year, anyway.

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Re: Best month to take RMDs?

Post by neilpilot » Wed Nov 06, 2019 5:55 pm

bertilak wrote:
Wed Nov 06, 2019 5:42 pm
neilpilot wrote:
Wed Nov 06, 2019 5:32 pm
bertilak wrote:
Wed Nov 06, 2019 4:38 pm

If you reinvest the money it doesn't matter when you take the RMD.
Forgetting capital appreciation for simplification, say your RMD is earning x% in dividends. If you take the RMD in January then most of the dividends will be taxed. If you delay the RMD until end of year, most dividends remain tax deferred.
Tax deferred until you take next year's RMD when it is taxed as income anyway. Any extra dividends (or cap gains, for that matter) you get to keep in the IRA simply make next year's RMD (and the taxes you pay) just that much higher. As far as taxes go, they get you one way or the other.
Not as you describe. As an example, assuming you just started your RMDs and defer dividends. Only 4% of those deferred dividends will come out as RMDs in each of the following several years. Sure you will eventually pay tax on those deferred dividends, but you will still benefit from many years of tax deferral.

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BL
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Re: Best month to take RMDs?

Post by BL » Wed Nov 06, 2019 6:02 pm

Not sure if everyone realizes that the QCD is almost unlimited (well, 100k/year). Whatever you direct to charity from your IRA will not be taxed, whenever you withdraw it. However, unless you do it before you withdraw all or some of your RMD, you will be paying tax on your RMD taken before the QCD.

I try to do the QCD (required RMD amount) by the middle of the year, then have my spouse choose when to do more QCDs later in the year. This is our concession between getting the required amount (RMD) taken care of relatively early, in case of death, illness, and forgetfulness, and letting it grow until later in the year for the optional part.

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Re: Best month to take RMDs?

Post by skp » Wed Nov 06, 2019 6:11 pm

Admittedly no nothing but can't you set autowithdrawl's monthly from the retirement accounts and have them autodeposited into your checking account? I always thought that it was recommended to do monthly vs lump sum deposits, why not the opposite? That would be the opposite of timing the market. It would also involve no effort.

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Re: Best month to take RMDs?

Post by RetiredAL » Wed Nov 06, 2019 6:21 pm

I start my RMD's next year. I only need 40% that amount for living expenses. The rest will go into a taxable account.

I plan on doing mine early, because, as I see it today:
1. The RMD is all taxed as ordinary income.
2. Attempting any Timing is fraught with a endless array of what-if's.
3. If the market goes down, I still have to withdraw the defined Y dollars and pay X*Y of taxes.
4. Any gains seen over the year in the taxable account have the potential for being LTCG's and thus get preferential tax treatment.
5. Qualified Dividends get preferential tax treatment.
6. I have the potential to Tax Loss Harvest the taxable account in a down year.
7. To date, I have not seen any compelling modeling of "when" might be better.

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Re: Best month to take RMDs?

Post by bertilak » Wed Nov 06, 2019 6:28 pm

neilpilot wrote:
Wed Nov 06, 2019 5:55 pm
Not as you describe. As an example, assuming you just started your RMDs and defer dividends. Only 4% of those deferred dividends will come out as RMDs in each of the following several years. Sure you will eventually pay tax on those deferred dividends, but you will still benefit from many years of tax deferral.
You are right, but it seems like "small potatoes" to me. Yes many years, but also few dollars. Admittedly, I haven't done the math and I was mostly concentrating on the bigger picture of "how much is invested."
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joylesshusband
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Re: Best month to take RMDs?

Post by joylesshusband » Wed Nov 06, 2019 6:46 pm

bertilak wrote:
Wed Nov 06, 2019 4:38 pm
If you reinvest the money it doesn't matter when you take the RMD.
I disagree.
It does matter if you reinvest, and here's why:

RMDs, being a simple vehicle for the taxman to get his cut from you, are based on the total of your traditional IRAs at the end of the previous year.

I have never enjoyed having less money in my pocket due to having paid a larger tax bill. "Taking" RMDs as early as possible prevents this from happening.

Let's keep in mind that the markets' direction is UP. They have their fluctuations, but the general direction is always UP, and that's why people invest.

Leaving the annual RMD amount in the traditional IRA for most of the year it should be "taken out" results in more growth (generated by said annual RMD) in the trad. IRA, which in turn means that my next year RMD would be larger, resulting in an even larger tax due.

If you "took" the RMD the first business day of the year, this entire growth would occur in your taxable account, denying the extra growth of the trad. IRA. End result: larger taxable account, smaller RMD next year, smaller tax due, and faster reduction of the entire trad. IRAs.
Net: more money in your pocket.
Retired July 2018 @ age 59. Posting here purely for amusement.

RadAudit
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Re: Best month to take RMDs?

Post by RadAudit » Wed Nov 06, 2019 7:23 pm

joylesshusband wrote:
Wed Nov 06, 2019 6:46 pm
Leaving the annual RMD amount in the traditional IRA for most of the year it should be "taken out" results in more growth (generated by said annual RMD) in the trad. IRA, which in turn means that my next year RMD would be larger, resulting in an even larger tax due.
OK. I concur; but, a question. RMDs at around 70.5 are about 3% + / -. Therefore, doesn't something like 97% of that "increase" remain tax deferred until later than the next year?
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

elainet7
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Re: Best month to take RMDs?

Post by elainet7 » Wed Nov 06, 2019 8:10 pm

roth conversion is considered a distribution

hudson
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Re: Best month to take RMDs?

Post by hudson » Wed Nov 06, 2019 8:49 pm

I'll take mine on January 2 and reinvest because I can mark it off my list.

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Re: Best month to take RMDs?

Post by Bmac » Wed Nov 06, 2019 9:02 pm

Well, definitely not October, according to Mark Twain:

OCTOBER: This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February.
- Pudd'nhead Wilson's Calendar

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UpsetRaptor
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Re: Best month to take RMDs?

Post by UpsetRaptor » Wed Nov 06, 2019 9:41 pm

joylesshusband wrote:
Wed Nov 06, 2019 6:46 pm
bertilak wrote:
Wed Nov 06, 2019 4:38 pm
If you reinvest the money it doesn't matter when you take the RMD.
I disagree.
It does matter if you reinvest, and here's why:

RMDs, being a simple vehicle for the taxman to get his cut from you, are based on the total of your traditional IRAs at the end of the previous year.

I have never enjoyed having less money in my pocket due to having paid a larger tax bill. "Taking" RMDs as early as possible prevents this from happening.

Let's keep in mind that the markets' direction is UP. They have their fluctuations, but the general direction is always UP, and that's why people invest.

Leaving the annual RMD amount in the traditional IRA for most of the year it should be "taken out" results in more growth (generated by said annual RMD) in the trad. IRA, which in turn means that my next year RMD would be larger, resulting in an even larger tax due.

If you "took" the RMD the first business day of the year, this entire growth would occur in your taxable account, denying the extra growth of the trad. IRA. End result: larger taxable account, smaller RMD next year, smaller tax due, and faster reduction of the entire trad. IRAs.
Net: more money in your pocket.
Theoretically taking later does help, but in my opinion, it really doesn't matter all that much, so personal preference is still certainly viable. An example:

$1M IRA 12/31 prior year, current year RMD divisor is 22. Investments earn 6% current year.

Scenario 1: On Jan 1, took RMD on $1M balance.
RMD = $1M/22 = $45,455.
$45,455 into taxable, $954,545 left in IRA. Both gain 6%* over the year.
Account balances: Taxable = $48,182*, IRA = $1,011,818
You pay tax on $45,455 ordinary income, $2,727 cap gains

Scenario 2: Waited until 12/31 to take RMD.
$1M balance gains 6% = $1,060,000. Take RMD $1M/22 = $45,455
Account Balances: Taxable = $45,455. IRA = $1,014,545
You pay tax on $45,455 ordinary income, $0 cap gains

Total account balances are ostensibly the same, but in Scenario 1 you'll pay a cap gains tax on $2,727, so let's say $409 at 15%.

* The dividend drag on taxable investment. Let's assume 15% cap gains x 2% dividend = .3, so 5.7% gain instead of 6%. Costs $136.

So a rough difference of ~$500 on a $1M IRA with these assumptions.

Edit to fix math mistake per Sport.
Last edited by UpsetRaptor on Wed Nov 06, 2019 11:31 pm, edited 2 times in total.

TravelforFun
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Re: Best month to take RMDs?

Post by TravelforFun » Wed Nov 06, 2019 9:54 pm

My RMD starts in two years and I plan to take it as late in the year as possible because:

- I could sell bond or stock to satisfy my RMD requirement and so market fluctuations during the year don't matter to me
- The longer I leave the money invested, the more it typically generates for me
- Forgetting to take to RMD is not a concern because it will be a recurrent activity on my calendar and on the instructions to heirs

TravelforFun

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Re: Best month to take RMDs?

Post by sport » Wed Nov 06, 2019 10:37 pm

UpsetRaptor wrote:
Wed Nov 06, 2019 9:41 pm
Scenario 1: On Jan 1, took RMD on $1M balance.
RMD = $1M/22 = $45,455.
UpsetRaptor wrote:
Wed Nov 06, 2019 9:41 pm
Scenario 2: Waited until 12/31 to take RMD.
$1M balance gains 6% = $1,060,000. Take RMD $1,060,000/22 = $48,182
The RMD is the same, $45,455 regardless of when in the year it is taken. The divisor is applied to the previous 12/31 balance.

RetiredCSProf
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Re: Best month to take RMDs?

Post by RetiredCSProf » Wed Nov 06, 2019 10:39 pm

This is my second year of RMDs. I am spending my RMDs (mostly on income taxes) and not re-investing. I am taking RMDs from two fund families, TRowe and Fido.

In my first year (2018), I waited until I turned 70.5 to start withdrawing RMDs (in July), then took QCDs through November. My best friend passed away in September last year, and I was able to make a donation in his name from QCDs, without having to wait to January. In early December, I took the remainder of my RMDs, followed by a small Roth conversion in late December (which fortuitously occurred when the market dipped.)

This year, I took half my TRowe RMD in March and the other half in July. I've been taking QCDs throughout the year from Fido. I plan to take the remainder of my RMD from Fido in December. (Actually, I can take all of the RMD from either IRA, but have chosen to split it this way.)

I am using withholding from RMDs to pay income taxes in lieu of making quarterly estimated tax payments. The advantage of holding back at least some of my RMD until December is that I have a better idea of my income for the year and can better estimate the amount to withhold to meet safe harbor rules.

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Re: Best month to take RMDs?

Post by bighatnohorse » Wed Nov 06, 2019 10:49 pm

I simply believe in leaving the money working for as long as possible before withdrawing it.
A "high tide" withdrawal would be nice, but like the tides, the timing is not a repeatable "set it and forget" thing.

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UpsetRaptor
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Re: Best month to take RMDs?

Post by UpsetRaptor » Wed Nov 06, 2019 10:53 pm

sport wrote:
Wed Nov 06, 2019 10:37 pm
UpsetRaptor wrote:
Wed Nov 06, 2019 9:41 pm
Scenario 1: On Jan 1, took RMD on $1M balance.
RMD = $1M/22 = $45,455.
UpsetRaptor wrote:
Wed Nov 06, 2019 9:41 pm
Scenario 2: Waited until 12/31 to take RMD.
$1M balance gains 6% = $1,060,000. Take RMD $1,060,000/22 = $48,182
The RMD is the same, $45,455 regardless of when in the year it is taken. The divisor is applied to the previous 12/31 balance.
You’re right, I stand corrected.

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grabiner
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Re: Best month to take RMDs?

Post by grabiner » Wed Nov 06, 2019 11:19 pm

When you take RMDs doesn't need to correspond to when you take money out of the market. If you take an RMD out of your IRA stock fund and invest it in a taxable stock fund, you keep the same stock-market exposure. If you want to take money out of the stock market but don't want to take an RMD now, you can sell stock to buy bonds in the RMD, and then take the RMD from the bond fund later.

If you don't need the money, it is usually better to keep it invested as long as possible, for more tax-deferred growth. If you take the RMD early in the year and don't spend it, any growth on the RMD is in your taxable account.
Wiki David Grabiner

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