Required Minimum Distribution Questions

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ltrmc02
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Required Minimum Distribution Questions

Post by ltrmc02 » Fri Jul 12, 2019 2:08 am

I helped my dad take a RMD from his old pre-tax work retirement plan and didn't have the discretion to choose whether it came from his stable value fund or his stock fund. I was told that the requested balance would be pulled from each fund proportionally. I do recall reading about having to take a RMD from each type of account awhile back but this has got me wondering if one has all of their retirement in an IRA with a broker and divided between say three stocks and some cash would the RMD have to pull from all three stocks and cash balance proportionally or could only the cash balance be withdrawn if it was in excess of the required amount to be withdrawn?

rossington
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Re: Required Minimum Distribution Questions

Post by rossington » Fri Jul 12, 2019 3:50 am

Your broker (in my case Vanguard) should notify you early in the current tax year what the calculated RMD amount will be. You have options as to which investment in the IRA the RMD will be deducted. Read this:https://personal.vanguard.com/us/help/F ... ontent.jsp > "Which funds should I take my RMD from?"
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Dandy
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Re: Required Minimum Distribution Questions

Post by Dandy » Fri Jul 12, 2019 5:53 am

I take my RMD from my Vanguard brokerage TIRA proportionately. They take it from the funds but not my brokerage CDs.

Spirit Rider
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Re: Required Minimum Distribution Questions

Post by Spirit Rider » Fri Jul 12, 2019 7:20 am

It is not uncommon for custodians to require RMDs to come proportionally from all holdings.

However, it is irrelevant in a tax-advantaged account. You can always adjust your account holdings after this occurs. In fact, I know many people who schedule their rebalancing after taking their RMDs.

cherijoh
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Re: Required Minimum Distribution Questions

Post by cherijoh » Fri Jul 12, 2019 7:27 am

ltrmc02 wrote:
Fri Jul 12, 2019 2:08 am
I helped my dad take a RMD from his old pre-tax work retirement plan and didn't have the discretion to choose whether it came from his stable value fund or his stock fund. I was told that the requested balance would be pulled from each fund proportionally. I do recall reading about having to take a RMD from each type of account awhile back but this has got me wondering if one has all of their retirement in an IRA with a broker and divided between say three stocks and some cash would the RMD have to pull from all three stocks and cash balance proportionally or could only the cash balance be withdrawn if it was in excess of the required amount to be withdrawn?
I have an inherited IRA at VG and my RMD can come from whatever combination of funds I want.

The proportional withdrawal strategy you describe is standard opwrating procedure for workplace - I gues to keep things simple. But it isn't an issue since (as others have mentioned) the employee/retiree can readjust their allocation without any tax-consequences.

mslaw
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Re: Required Minimum Distribution Questions

Post by mslaw » Fri Jul 12, 2019 8:05 am

This was an interesting question. Are there retirement accounts or in fact, only one retirement account?
Actually, the very good summary, provided in the article referenced below, would lead me to question the retirement administrator’s actions.

https://www.investopedia.com/articles/r ... 120604.asp

Spirit Rider
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Re: Required Minimum Distribution Questions

Post by Spirit Rider » Fri Jul 12, 2019 10:01 am

mslaw wrote:
Fri Jul 12, 2019 8:05 am
This was an interesting question. Are there retirement accounts or in fact, only one retirement account?
Actually, the very good summary, provided in the article referenced below, would lead me to question the retirement administrator’s actions.

https://www.investopedia.com/articles/r ... 120604.asp
The OP said nothing about being forced to take the RMD, only that the plan required the RMD to come proportionally. Which a plan is full authorised to do so. Even if the RMD was forced, you didn't fully understand the article, especially this part;

You may not combine the RMDs for multiple qualified plans. "If you have 401(k) plans from former employers, you would need to take RMDs on those, and, unlike IRAs, you would need to calculate the RMD for each plan and take that amount from each account,"

Also, in addition to IRAs, 403b plans can be aggregated for RMDs, but neither can be aggregated with each other or 401k plans.

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ResearchMed
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Re: Required Minimum Distribution Questions

Post by ResearchMed » Fri Jul 12, 2019 10:57 am

Spirit Rider wrote:
Fri Jul 12, 2019 10:01 am
mslaw wrote:
Fri Jul 12, 2019 8:05 am
This was an interesting question. Are there retirement accounts or in fact, only one retirement account?
Actually, the very good summary, provided in the article referenced below, would lead me to question the retirement administrator’s actions.

https://www.investopedia.com/articles/r ... 120604.asp
The OP said nothing about being forced to take the RMD, only that the plan required the RMD to come proportionally. Which a plan is full authorised to do so. Even if the RMD was forced, you didn't fully understand the article, especially this part;

You may not combine the RMDs for multiple qualified plans. "If you have 401(k) plans from former employers, you would need to take RMDs on those, and, unlike IRAs, you would need to calculate the RMD for each plan and take that amount from each account,"

Also, in addition to IRAs, 403b plans can be aggregated for RMDs, but neither can be aggregated with each other or 401k plans.
A nit to pick about terminology: 403b plans are *also* "qualified plans", not just 401k plans.

So one part above isn't quite right.

Also, I'm forgetting the reason, but I think it was stated here (BH) that one should calculate the RMD for *each* of the aggregated accounts, and *then* take the total from one, if one wants to aggregrate. IIRC, it's not just the tiny rounding error that is of concern, but perhaps I remembered this part incorrectly (e.g., "IIRI"?).

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Alan S.
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Re: Required Minimum Distribution Questions

Post by Alan S. » Fri Jul 12, 2019 11:35 am

A 403b plan is technically NOT a QRP (qualified retirement plan) and has it's own set of IRS Regs. But for most purposes it is treated like one.

One difference is that RMD aggregation rules among 403b plans operate the same way as aggregation between IRA accounts. Your RMD can be taken in any combination from your 403b plans if you own more than one. This rule has been it challenging for 403 administrators to be sure that their plan has met the RMD rules since they only control their own 403b plan.

As for 401k plans, each plan must satisfy it's own RMD, but sub accounts within the plan are all treated as a single plan. IRS rules allow you to satisfy the plan RMD in combination from your pre tax balance, your separate after tax balance, or even your Roth 401k balance. But many plans have restricted their RMD rules to require pro rata distributions, particularly between the Roth and other sub accounts. Therefore, you may well not have the control of how your RMD is funded in certain plans like you would with an IRA where you can take your RMDs from any account or any investments you please. Some qualified plans including the TSP will not even use Table II for RMDs if your spouse is >10 years younger than you are.

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