RMDs in a falling market?

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Gerbil
Posts: 9
Joined: Wed Aug 30, 2017 10:17 am

RMDs in a falling market?

Post by Gerbil » Mon Dec 17, 2018 9:34 am

I've never given much thought to how to take RMDs in a falling market simply because I never had to. But now I might.

I'm considering switching the dividend pay-out option for my qualified plan mutual funds from reinvestment to pay-out to a money-market fund within the qualified plan, then take the RMD from the money market fund.

Thoughts?

Pitfalls?

kaneohe
Posts: 5954
Joined: Mon Sep 22, 2008 12:38 pm

Re: RMDs in a falling market?

Post by kaneohe » Mon Dec 17, 2018 9:43 am

If you're going to spend the RMD, it might be good to have a stable asset base to pull from. If you're not going to spend it, you can reinvest in the same fund in taxable so it might not be necessary to have that stable asset base. In reality unless you have a large stable asset base in taxable, you need to provide for taxes..........so perhaps you withdraw some of each....from the equity part to reinvest; from the stable asset base for taxes.

Except for the tax liability, there is some advantage in getting the funds into taxable since taxes there can be capital gains vs ordinary income rates on withdrawals from the retirement plans.

You might want to check w/ the plan to see how they do the withdrawals. Some allow you to specify where to take from;others do pro-rata and pull from all the funds proportional to their values.

Ron
Posts: 6550
Joined: Fri Feb 23, 2007 7:46 pm

Re: RMDs in a falling market?

Post by Ron » Mon Dec 17, 2018 3:38 pm

Gerbil wrote:
Mon Dec 17, 2018 9:34 am
I'm considering switching the dividend pay-out option for my qualified plan mutual funds from reinvestment to pay-out to a money-market fund within the qualified plan, then take the RMD from the money market fund.
I can't say it's the right thing to do, but it's what we both do.

This was our first year of paying RMD's and we did so by selling shares in early January, when the market was still positive from 2017. The proceeds of our respective RMD's were used to pay FIT on the withdrawal, along with FIT on our other sources of forecast individual retirement income for 2018. While my wife's RMD resulted in no excess cash after paying FIT on her total retirement income (SS plus two small pensions), mine resulted in excess cash that was reinvested into taxable funds.

In June, after we had both started our age-70 SS and the market seemed like it was going to be a difficult year, we both went from total return investors (since 1982) to income investors and having our dividends in our TIRA funds go to a MM fund. We continued to be total return investors in our respective Roth IRA's, reinvesting all distributions/capital gains into additional shares with the goal of having those funds be part of our estate distribution in the future.

As of this date, our estimated year-end RMD's along with forecast FIT for 2018 for all income sources will easily be covered by the distributions to our respective TIRA MM funds, and I again will have a bit extra to invest in taxable funds (or spend, as I/wife wish).

Can we do better over the long term by remaining to be total return investors as we have been for the last three plus decades? Maybe. However at our age "long term" is not guaranteed, and we're looking to make things a bit simpler and since we've already "won the game", we have little desire to temp fate and have to sell shares in a down year to satisfy RMD's, along with the FIT due on that withdrawal along with all the other sources of retirement income.

FWIW,

- Ron

Greytdaze
Posts: 8
Joined: Mon May 28, 2018 1:41 pm

Re: RMDs in a falling market?

Post by Greytdaze » Tue Dec 18, 2018 6:47 am

We are struggling with this in regard to how to handle withdrawals for the coming year.

If dividends and capital gains from our traditional IRA's are deposited directly into our checking account---and the total amount at year end is sufficient to meet the RMD amount---would that work? Is that a reasonable plan?

Ron
Posts: 6550
Joined: Fri Feb 23, 2007 7:46 pm

Re: RMDs in a falling market?

Post by Ron » Tue Dec 18, 2018 9:02 am

Greytdaze wrote:
Tue Dec 18, 2018 6:47 am
We are struggling with this in regard to how to handle withdrawals for the coming year.

If dividends and capital gains from our traditional IRA's are deposited directly into our checking account---and the total amount at year end is sufficient to meet the RMD amount---would that work? Is that a reasonable plan?
Sure it is. As long as you move it out of your tax-deferred vehicle and pay tax on it (immediately or during the year), the government doesn't care. You can withdraw dividends/cap gains on any cycle you wish once they are declared/distributed.

After the money is out of the TIRA, you can do what you want with it. The only thing the government is interested in is getting their pound of flesh (re: Merchant of Venice) sometime during the year.

- Ron

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SpringMan
Posts: 5411
Joined: Wed Mar 21, 2007 11:32 am
Location: Michigan

Re: RMDs in a falling market?

Post by SpringMan » Tue Dec 18, 2018 9:44 am

We take RMDs from the bond portion of our IRA so whether stocks are down or not does not matter. When stocks are down is usually a good time to buy some stock funds in our taxable account even though doing so makes our asset allocation more aggressive. We have gradually gone from 40/60 to 50/50.
Best Wishes, SpringMan

kaneohe
Posts: 5954
Joined: Mon Sep 22, 2008 12:38 pm

Re: RMDs in a falling market?

Post by kaneohe » Wed Dec 19, 2018 8:40 am

Another consideration is that you will need to pay the taxes on the RMD so you may want at least some portion of the RMD to come from stable funds. Even if you have a large stash of cash in taxable, you will be depleting it so will need to replenish in the steady state.

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