Best month to take RMDs?

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joylesshusband
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Re: Best month to take RMDs?

Post by joylesshusband » Thu Nov 07, 2019 12:33 am

UpsetRaptor wrote:
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.
I'm not sure what you tried to illustrate here, after quoting my post.
Your Scenario 1 is flawed, as I specifically addressed reinvestment, hence the $45+k new money in taxable don't get sold, thus there's no capital gains to be taxed whatsoever.
Also, I clearly targeted what happens down the timeline (the next year, and the one after, and so on...), while you stopped on Year 1.
The difference gets pretty sizable after a few years.
Retired July 2018 @ age 59. Posting here purely for amusement.

Dandy
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Re: Best month to take RMDs?

Post by Dandy » Thu Nov 07, 2019 7:16 am

My advice is automate the process and complete it early December at the latest. You don't want to forget it, have some glitch that carries over the year end or get sick or otherwise can't get to pull the switch.

If you don't particularly need the RMD then I would suggest take it quarterly - Jan,Apr,July,Oct.

hulburt1
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Re: Best month to take RMDs?

Post by hulburt1 » Thu Nov 07, 2019 10:46 am

In 3 years I will have RMD. Right now I have 800 a week sent to me from my IRA. Will I really need to do anything different?
Do I need to let Van or IRS know that It is a RMD.

mpnret
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Re: Best month to take RMDs?

Post by mpnret » Thu Nov 07, 2019 11:06 am

Dandy wrote:
Thu Nov 07, 2019 7:16 am
My advice is automate the process and complete it early December at the latest. You don't want to forget it, have some glitch that carries over the year end or get sick or otherwise can't get to pull the switch.

If you don't particularly need the RMD then I would suggest take it quarterly - Jan,Apr,July,Oct.
I don't particulary need my RMD so I wait until December to take it. That way the money stays invested tax deferred as long as possible. Also both federal and state tax gets deducted from the RMD. Just enough to avoid the penalty. The balance gets paid with tax return. I pay no tax all year until the RMD deduction. Beats doing estimated taxes.

sport
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Re: Best month to take RMDs?

Post by sport » Thu Nov 07, 2019 11:15 am

hulburt1 wrote:
Thu Nov 07, 2019 10:46 am
In 3 years I will have RMD. Right now I have 800 a week sent to me from my IRA. Will I really need to do anything different?
Do I need to let Van or IRS know that It is a RMD.
When it is time for your RMDs, you will need to calculate (or let Vanguard do it) the amount of your RMD. It is based on the size of your IRA account. RMD means Required Minimum Distribution. That means that you must take out AT LEAST that amount during the year (first year can extend to Apr 1 of the next year). An RMD is no different than any other distribution. It is just the minimum you must take. If $800/week is equal or more than your RMD, you can just keep doing the same thing.

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CAsage
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Re: Best month to take RMDs?

Post by CAsage » Thu Nov 07, 2019 11:43 am

celia wrote:
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.)
This quote caught my eye and I wanted to ask for confirmation of my understanding here. I believe that the rule about RMD not being allowed to be part of the Roth Conversion, and the Roth conversion therefore must be $$ above and beyond the RMD, refers to the subtraction of the RMD amount when doing ones taxes at the end of the year. In other words, it's completely acceptable to do a Roth conversion on January, and then take your RMD monthly over the entire year because the "before doing conversions" is an arithmetic constraint, not a calendar issue. True?
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

Hug401k
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Re: Best month to take RMDs?

Post by Hug401k » Thu Nov 07, 2019 12:05 pm

I take it on my birthday. Very scientific.

RetiredCSProf
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Re: Best month to take RMDs?

Post by RetiredCSProf » Thu Nov 07, 2019 12:49 pm

CAsage wrote:
Thu Nov 07, 2019 11:43 am
celia wrote:
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.)
This quote caught my eye and I wanted to ask for confirmation of my understanding here. I believe that the rule about RMD not being allowed to be part of the Roth Conversion, and the Roth conversion therefore must be $$ above and beyond the RMD, refers to the subtraction of the RMD amount when doing ones taxes at the end of the year. In other words, it's completely acceptable to do a Roth conversion on January, and then take your RMD monthly over the entire year because the "before doing conversions" is an arithmetic constraint, not a calendar issue. True?
No. IRS rule is that you must satisfy your RMD before converting to a Roth in a given calendar year. You can distribute your RMD into a taxable account in January, then do a Roth conversion, and take monthly withdrawals from the taxable account.

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CAsage
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Re: Best month to take RMDs?

Post by CAsage » Thu Nov 07, 2019 1:24 pm

RetiredCSProf wrote:
Thu Nov 07, 2019 12:49 pm

No. IRS rule is that you must satisfy your RMD before converting to a Roth in a given calendar year. You can distribute your RMD into a taxable account in January, then do a Roth conversion, and take monthly withdrawals from the taxable account.
Can you refer me to the exact IRS rule on that, for my education? I looked briefly at the IRS website, form 8606 and found nothing that talks about timing.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

Dandy
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Re: Best month to take RMDs?

Post by Dandy » Thu Nov 07, 2019 2:31 pm

I don't particulary need my RMD so I wait until December to take it.
Just make sure to automate the RMD deduction so illness or forgetfulness, etc. won't cause a problem. You can always decide to take it manually if you need to for some reason.

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GerryL
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Re: Best month to take RMDs?

Post by GerryL » Thu Nov 07, 2019 3:07 pm

My plan, which I started executing this year:
First half of year do QCDs.
Second half of year, take remainder of RMD and have taxes withheld to satisfy Safe Harbor rules.

This year I actually moved my RMD amount to cash in my IRA well before I started executing on my plan. The market dip in December had lowered my IRA and expected RMD. I noticed early in the year that my IRA had recovered enough to more than cover the RMD amount, so I figured it was a good time to capture the earnings in cash. I will probably continue moving the RMD to cash in the IRA early in the year just because it is simpler to rebalance one time and then take QCDs/RMDs out of the cash account. I earn a little interest on the dollars sitting in cash and I don't worry about missed growth, because it is a relatively small piece of the total.

andypanda
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Re: Best month to take RMDs?

Post by andypanda » Thu Nov 07, 2019 3:22 pm

I vote for...

"Go on, take the money and run" - Steve Miller

sport
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Re: Best month to take RMDs?

Post by sport » Thu Nov 07, 2019 3:24 pm

CAsage wrote:
Thu Nov 07, 2019 1:24 pm
RetiredCSProf wrote:
Thu Nov 07, 2019 12:49 pm

No. IRS rule is that you must satisfy your RMD before converting to a Roth in a given calendar year. You can distribute your RMD into a taxable account in January, then do a Roth conversion, and take monthly withdrawals from the taxable account.
Can you refer me to the exact IRS rule on that, for my education? I looked briefly at the IRS website, form 8606 and found nothing that talks about timing.
From IRS Pub 590-B:
Required minimum distribution. The amount that must be distributed each year is referred to as the required minimum distribution.
Distributions not eligible for rollover. Amounts that must be distributed (required minimum distributions) during a particular year aren't eligible for rollover treatment.

mpnret
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Re: Best month to take RMDs?

Post by mpnret » Thu Nov 07, 2019 3:37 pm

sport wrote:
Thu Nov 07, 2019 3:24 pm
CAsage wrote:
Thu Nov 07, 2019 1:24 pm
RetiredCSProf wrote:
Thu Nov 07, 2019 12:49 pm

No. IRS rule is that you must satisfy your RMD before converting to a Roth in a given calendar year. You can distribute your RMD into a taxable account in January, then do a Roth conversion, and take monthly withdrawals from the taxable account.
Can you refer me to the exact IRS rule on that, for my education? I looked briefly at the IRS website, form 8606 and found nothing that talks about timing.
From IRS Pub 590-B:
Required minimum distribution. The amount that must be distributed each year is referred to as the required minimum distribution.
Distributions not eligible for rollover. Amounts that must be distributed (required minimum distributions) during a particular year aren't eligible for rollover treatment.
So it looks like I can convert $ to Roth in January as long as I take my full RMD amount by the end of the year.

sport
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Re: Best month to take RMDs?

Post by sport » Thu Nov 07, 2019 3:42 pm

mpnret wrote:
Thu Nov 07, 2019 3:37 pm
sport wrote:
Thu Nov 07, 2019 3:24 pm
CAsage wrote:
Thu Nov 07, 2019 1:24 pm
RetiredCSProf wrote:
Thu Nov 07, 2019 12:49 pm

No. IRS rule is that you must satisfy your RMD before converting to a Roth in a given calendar year. You can distribute your RMD into a taxable account in January, then do a Roth conversion, and take monthly withdrawals from the taxable account.
Can you refer me to the exact IRS rule on that, for my education? I looked briefly at the IRS website, form 8606 and found nothing that talks about timing.
From IRS Pub 590-B:
Required minimum distribution. The amount that must be distributed each year is referred to as the required minimum distribution.
Distributions not eligible for rollover. Amounts that must be distributed (required minimum distributions) during a particular year aren't eligible for rollover treatment.
So it looks like I can convert $ to Roth in January as long as I take my full RMD amount by the end of the year.
No! You must take the RMD first. Then you can convert as much as you wish. The first distributions go towards your RMD.

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CAsage
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Re: Best month to take RMDs?

Post by CAsage » Thu Nov 07, 2019 4:37 pm

sport wrote:
Thu Nov 07, 2019 3:42 pm
mpnret wrote:
Thu Nov 07, 2019 3:37 pm
sport wrote:
Thu Nov 07, 2019 3:24 pm
CAsage wrote:
Thu Nov 07, 2019 1:24 pm
RetiredCSProf wrote:
Thu Nov 07, 2019 12:49 pm

No. IRS rule is that you must satisfy your RMD before converting to a Roth in a given calendar year. You can distribute your RMD into a taxable account in January, then do a Roth conversion, and take monthly withdrawals from the taxable account.
Can you refer me to the exact IRS rule on that, for my education? I looked briefly at the IRS website, form 8606 and found nothing that talks about timing.
From IRS Pub 590-B:
Required minimum distribution. The amount that must be distributed each year is referred to as the required minimum distribution.
Distributions not eligible for rollover. Amounts that must be distributed (required minimum distributions) during a particular year aren't eligible for rollover treatment.
So it looks like I can convert $ to Roth in January as long as I take my full RMD amount by the end of the year.
No! You must take the RMD first. Then you can convert as much as you wish. The first distributions go towards your RMD.
I'm sorry, I really don't reach the same conclusion as Sport! You must withdraw the RMD, and then you can convert above that, but that is an arithmetic calculation done for tax purposes and says absolutely nothing about time or calendarization. The 590-B paragraph you quoted states how they are handled, nothing about the order. When I hit 70, I plan to do my carefully calculated Roth Conversions in January, withdraw my RMD over many months, and then pay my taxes via yet another distribution at the end of the year (the net distribution will exceed the RMD).
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

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Re: Best month to take RMDs?

Post by neilpilot » Thu Nov 07, 2019 4:50 pm

sport wrote:
Thu Nov 07, 2019 3:42 pm
mpnret wrote:
Thu Nov 07, 2019 3:37 pm
sport wrote:
Thu Nov 07, 2019 3:24 pm
CAsage wrote:
Thu Nov 07, 2019 1:24 pm
RetiredCSProf wrote:
Thu Nov 07, 2019 12:49 pm

No. IRS rule is that you must satisfy your RMD before converting to a Roth in a given calendar year. You can distribute your RMD into a taxable account in January, then do a Roth conversion, and take monthly withdrawals from the taxable account.
Can you refer me to the exact IRS rule on that, for my education? I looked briefly at the IRS website, form 8606 and found nothing that talks about timing.
From IRS Pub 590-B:
Required minimum distribution. The amount that must be distributed each year is referred to as the required minimum distribution.
Distributions not eligible for rollover. Amounts that must be distributed (required minimum distributions) during a particular year aren't eligible for rollover treatment.
So it looks like I can convert $ to Roth in January as long as I take my full RMD amount by the end of the year.
No! You must take the RMD first. Then you can convert as much as you wish. The first distributions go towards your RMD.
CAusage Sport I'm not saying your wrong, but I don't read what you are saying from the section of IRS Pub 590-B that you posted. It says the RMD portion isn't eligible for rollover, but I can't see where it says that the RMD needs to occur before the rollover.
Last edited by neilpilot on Thu Nov 07, 2019 5:29 pm, edited 1 time in total.

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CAsage
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Re: Best month to take RMDs?

Post by CAsage » Thu Nov 07, 2019 5:06 pm

neilpilot wrote:
Thu Nov 07, 2019 4:50 pm

From IRS Pub 590-B:
Required minimum distribution. The amount that must be distributed each year is referred to as the required minimum distribution.
Distributions not eligible for rollover. Amounts that must be distributed (required minimum distributions) during a particular year aren't eligible for rollover treatment.


CAsage, I'm not saying your wrong, but I don't read what you are saying from the section of IRS Pub 590-B that you posted. It says the RMD portion isn't eligible for rollover, but I can't see where it says that the RMD needs to occur before the rollover.
What I attempted to say (and I did not post the original IRS Pub) was that you can do them in any order, but the Roth Conversion dollars must exceed, be beyond or be greater than the separate RMD. I don't see any timing constraint, and personally will proceed accordingly. Caveat viverra (which of course is Latin for Beware Investor.... thanks google).
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

neilpilot
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Re: Best month to take RMDs?

Post by neilpilot » Thu Nov 07, 2019 5:30 pm

CAsage wrote:
Thu Nov 07, 2019 5:06 pm
neilpilot wrote:
Thu Nov 07, 2019 4:50 pm

From IRS Pub 590-B:
Required minimum distribution. The amount that must be distributed each year is referred to as the required minimum distribution.
Distributions not eligible for rollover. Amounts that must be distributed (required minimum distributions) during a particular year aren't eligible for rollover treatment.


CAsage, I'm not saying your wrong, but I don't read what you are saying from the section of IRS Pub 590-B that you posted. It says the RMD portion isn't eligible for rollover, but I can't see where it says that the RMD needs to occur before the rollover.
What I attempted to say (and I did not post the original IRS Pub) was that you can do them in any order, but the Roth Conversion dollars must exceed, be beyond or be greater than the separate RMD. I don't see any timing constraint, and personally will proceed accordingly. Caveat viverra (which of course is Latin for Beware Investor.... thanks google).
Actually, my comment should have been directed at Sport. Earlier post has been corrected.

jdb
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Re: Best month to take RMDs?

Post by jdb » Thu Nov 07, 2019 5:56 pm

This is a long thread for what seems like simple inquiry. January is great month to take RMD. Also February through March. Also April through December. Just be sure to take all required RMD by December 31. Hope this helps. Good luck.

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BigFoot48
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Re: Best month to take RMDs?

Post by BigFoot48 » Thu Nov 07, 2019 6:01 pm

mpnret wrote:
Thu Nov 07, 2019 11:06 am
I don't particulary need my RMD so I wait until December to take it. That way the money stays invested tax deferred as long as possible. Also both federal and state tax gets deducted from the RMD. Just enough to avoid the penalty. The balance gets paid with tax return. I pay no tax all year until the RMD deduction. Beats doing estimated taxes.
Exactly why I do it in December also.
Retired | Two-time in top-10 in Bogleheads S&P500 contest; 13-time loser

Raraculus
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Re: Best month to take RMDs?

Post by Raraculus » Thu Nov 07, 2019 6:44 pm

gr7070 wrote:
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.
I think this RMD thing was a big contributor to the market correction in December 2018. The baby boomers have their IRA's and are now making RMD's in December.

Now, I'm thinking about having an index put option strategy for December 2019... :shock:

Do us all a favor... If you have RMD's, please make your distributions on your birth month. I'm guilty of the December thing, as I wanted to give myself a nice Xmas present. I'll be switching over to my birth month.

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Artsdoctor
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Re: Best month to take RMDs?

Post by Artsdoctor » Thu Nov 07, 2019 7:01 pm

CAsage wrote:
Thu Nov 07, 2019 4:37 pm
sport wrote:
Thu Nov 07, 2019 3:42 pm
mpnret wrote:
Thu Nov 07, 2019 3:37 pm
sport wrote:
Thu Nov 07, 2019 3:24 pm
CAsage wrote:
Thu Nov 07, 2019 1:24 pm


Can you refer me to the exact IRS rule on that, for my education? I looked briefly at the IRS website, form 8606 and found nothing that talks about timing.
From IRS Pub 590-B:
Required minimum distribution. The amount that must be distributed each year is referred to as the required minimum distribution.
Distributions not eligible for rollover. Amounts that must be distributed (required minimum distributions) during a particular year aren't eligible for rollover treatment.
So it looks like I can convert $ to Roth in January as long as I take my full RMD amount by the end of the year.
No! You must take the RMD first. Then you can convert as much as you wish. The first distributions go towards your RMD.
I'm sorry, I really don't reach the same conclusion as Sport! You must withdraw the RMD, and then you can convert above that, but that is an arithmetic calculation done for tax purposes and says absolutely nothing about time or calendarization. The 590-B paragraph you quoted states how they are handled, nothing about the order. When I hit 70, I plan to do my carefully calculated Roth Conversions in January, withdraw my RMD over many months, and then pay my taxes via yet another distribution at the end of the year (the net distribution will exceed the RMD).
Let's make sure we're correct about this. It all depends on when you hit 70; if the year you turn 70 is different than the year that you turn 70-1/2, you can convert as much as you want. It's when you turn 70-1/2 that really matters.

Once you reach the YEAR that you turn 70-1/2, the first money out of the account counts as an RMD. You can't first convert to a Roth and then take your RMD later that year.

This is buried in the IRS rules but you'll be much further ahead by reading Ed Slott. You're not going to find anyone more well-versed on tax-deferred accounts and he has quite a bit of information on RMDs and timing.

(Another confusing topic is that a QCD cannot be taken anytime during the year you turn 70-1/2. You actually have to BE 70-1/2 to use your QCD as part of your RMD.)

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Re: Best month to take RMDs?

Post by sport » Thu Nov 07, 2019 7:07 pm

Artsdoctor wrote:
Thu Nov 07, 2019 7:01 pm
Once you reach the YEAR that you turn 70-1/2, the first money out of the account counts as an RMD. You can't first convert to a Roth and then take your RMD later that year.
Well, at least one person agrees with me. :sharebeer

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Artsdoctor
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Re: Best month to take RMDs?

Post by Artsdoctor » Thu Nov 07, 2019 7:13 pm

I don't think anyone can say definitively which month is best to take an RMD because there are pros and cons to any decision.

In a vacuum, you'd think that you'd want the money grow tax-free as long as possible so taking a December RMD is the best option. Additionally, there's an incredibly nice feature with a December RMD which hasn't been discussed in detail: the ability to not make estimated quarterly taxes throughout the year but to do the whole thing at the end of the year via your RMD without penalty.

Still, a December RMD does box you in if you want to be flexible with your money. It can sometimes take more time than expected to deal with QCDs, if that's part of your plan. It really does put the beneficiary in a bind if you die right before the RMD is taken. And it doesn't give you a lot of time to take the RMD and then do a Roth conversion if you want.

Conversely, taking an RMD in January effectively wipes out your ability to use the QCD feature unless you do that even before your January RMD. You lose the ability to defer tax payments like you would if you waited, if that's important to you. But your heirs will be happy and you'll have your money.
Last edited by Artsdoctor on Thu Nov 07, 2019 8:50 pm, edited 1 time in total.

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Artsdoctor
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Re: Best month to take RMDs?

Post by Artsdoctor » Thu Nov 07, 2019 7:14 pm

sport wrote:
Thu Nov 07, 2019 7:07 pm
Artsdoctor wrote:
Thu Nov 07, 2019 7:01 pm
Once you reach the YEAR that you turn 70-1/2, the first money out of the account counts as an RMD. You can't first convert to a Roth and then take your RMD later that year.
Well, at least one person agrees with me. :sharebeer
Not only do I agree with you, but Ed Slott does as well. :sharebeer

https://www.irahelp.com/slottreport/ano ... pproaching

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Re: Best month to take RMDs?

Post by abuss368 » Thu Nov 07, 2019 8:10 pm

I have retired family that keep the RMD process simple and take 100% of the RMD at the start of the new year. This simplicity has worked well.
John C. Bogle: "Simplicity is the master key to financial success."

sport
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Post by sport » Thu Nov 07, 2019 8:27 pm

abuss368 wrote:
Thu Nov 07, 2019 8:10 pm
I have retired family that keep the RMD process simple and take 100% of the RMD at the start of the new year. This simplicity has worked well.
This method prevents taking full advantage of QCDs. Now, if they do not give anything to charities, then it doesn't matter so much. QCDs are a wonderful tax break if you make donations. They count towards your RMD, but are completely tax free. They also lower your AGI which helps with taxation of social security, ACA subsidies, IRMAA, etc. They can also lower your state income tax.

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Re:

Post by abuss368 » Thu Nov 07, 2019 8:43 pm

sport wrote:
Thu Nov 07, 2019 8:27 pm
abuss368 wrote:
Thu Nov 07, 2019 8:10 pm
I have retired family that keep the RMD process simple and take 100% of the RMD at the start of the new year. This simplicity has worked well.
This method prevents taking full advantage of QCDs. Now, if they do not give anything to charities, then it doesn't matter so much. QCDs are a wonderful tax break if you make donations. They count towards your RMD, but are completely tax free. They also lower your AGI which helps with taxation of social security, ACA subsidies, IRMAA, etc. They can also lower your state income tax.
Correct. They do not do QCDs.
John C. Bogle: "Simplicity is the master key to financial success."

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celia
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Re: Best month to take RMDs?

Post by celia » Fri Nov 08, 2019 2:41 am

mpnret wrote:
Thu Nov 07, 2019 3:37 pm
sport wrote:
Thu Nov 07, 2019 3:24 pm
CAsage wrote:
Thu Nov 07, 2019 1:24 pm
RetiredCSProf wrote:
Thu Nov 07, 2019 12:49 pm

No. IRS rule is that you must satisfy your RMD before converting to a Roth in a given calendar year. You can distribute your RMD into a taxable account in January, then do a Roth conversion, and take monthly withdrawals from the taxable account.
Can you refer me to the exact IRS rule on that, for my education? I looked briefly at the IRS website, form 8606 and found nothing that talks about timing.
From IRS Pub 590-B:
Required minimum distribution. The amount that must be distributed each year is referred to as the required minimum distribution.
Distributions not eligible for rollover. Amounts that must be distributed (required minimum distributions) during a particular year aren't eligible for rollover treatment.
So it looks like I can convert $ to Roth in January as long as I take my full RMD amount by the end of the year.


It took me quite a while but I finally found a source that quotes the IRS saying RMDs must be taken first. It is NOT in IRS Pub 590-B, but rather in their Code of Federal Regulations (CFRs) in Q&A format.


First, it is easier to read this article which provides a good explanation, than the CFR. Near the end, it says:
https://www.marottaonmoney.com/roth-conversion-take-your-required-minimum-distribution-out-first/ wrote: To ensure this happens correctly, they have made a rule that, “Amounts that must be distributed (required minimum distributions) during a particular year are not eligible for rollover treatment” (from IRS Publication 590-B). They explain further in 26 CFR 1.402(c)-2 of the IRS code, “For example, if an employee is required under section 401(a)(9) to receive a required minimum distribution for a calendar year of $5,000 and the employee receives a total of $7,200 in that year, the first $5,000 distributed will be treated as the required minimum distribution and will not be an eligible rollover distribution and the remaining $2,200 will be an eligible rollover distribution if it otherwise qualifies.”

Given those rules, the RMD portion of that check is not eligible for deposit into a different IRA. Your RMD for the year must be withdrawn from the account first and then any additional assets may be rolled over into a new account.

Although the IRS made this rule because of rollover contributions, the rules apply to direct rollovers as well. Before you can transfer funds from one retirement account to another, you must distribute your RMD for the year from the account.

Because the IRS views Roth conversions through IRA Rollover rules, before you convert anything, you must first satisfy your RMD, withdrawing those funds and keeping them out of retirement accounts.
The CFR the article references is to some Q&As the IRS provided for "clarification". The answer to question 7 is what the article references. To read the CFR yourself, go to:

https://www.law.cornell.edu/cfr/text/26/1.402%28c%29-2
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 dickyboy » Fri Nov 08, 2019 3:22 am

celia wrote:
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.)
Im not so sure about that...I did that once...did a conversion prior to taking my rmd and my financial advisor said I was OK with that as long as I was certain to get my rmd before year end, otherwise I would not be in compliance. That was some years ago and it never backfired on me.

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Re: Best month to take RMDs?

Post by mpnret » Fri Nov 08, 2019 10:30 am

Artsdoctor wrote:
Thu Nov 07, 2019 7:13 pm
I don't think anyone can say definitively which month is best to take an RMD because there are pros and cons to any decision.

In a vacuum, you'd think that you'd want the money grow tax-free as long as possible so taking a December RMD is the best option. Additionally, there's an incredibly nice feature with a December RMD which hasn't been discussed in detail: the ability to not make estimated quarterly taxes throughout the year but to do the whole thing at the end of the year via your RMD without penalty.

Still, a December RMD does box you in if you want to be flexible with your money. It can sometimes take more time than expected to deal with QCDs, if that's part of your plan. It really does put the beneficiary in a bind if you die right before the RMD is taken. And it doesn't give you a lot of time to take the RMD and then do a Roth conversion if you want.

Conversely, taking an RMD in January effectively wipes out your ability to use the QCD feature unless you do that even before your January RMD. You lose the ability to defer tax payments like you would if you waited, if that's important to you. But your heirs will be happy and you'll have your money.
You can still get the best of both worlds. Don't wait to the last minute of December to do an RMD. Move it up to November or whatever date makes you comfortable. You still get the tax advantage of no estimated payments and making only one payment close to the end of the year, money stays invested tax defered longer but still have time to do QCDs or whatever. Of course if you need the money to live on you take it earlier but otherwise the advantage is in waiting.

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Re: Best month to take RMDs?

Post by Artsdoctor » Fri Nov 08, 2019 10:36 am

dickyboy wrote:
Fri Nov 08, 2019 3:22 am
celia wrote:
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.)
Im not so sure about that...I did that once...did a conversion prior to taking my rmd and my financial advisor said I was OK with that as long as I was certain to get my rmd before year end, otherwise I would not be in compliance. That was some years ago and it never backfired on me.
Just a word of caution here. Your financial advisor may be quite good. That doesn't necessarily mean that he gave you the correct information.

RMDs can be more difficult to calculate than you think when you have multiple accounts. There is some flexibility when it comes to transferring money around with regards to what the broker is keeping track of. But at the end of the day, at least for some aspects of record-keeping, it is your responsibility to make sure that the numbers work out correctly. Just because it worked for you without getting dinged doesn't necessarily mean that it was the correct thing to do.

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Re: Best month to take RMDs?

Post by Artsdoctor » Fri Nov 08, 2019 10:37 am

celia wrote:
Fri Nov 08, 2019 2:41 am
mpnret wrote:
Thu Nov 07, 2019 3:37 pm
sport wrote:
Thu Nov 07, 2019 3:24 pm
CAsage wrote:
Thu Nov 07, 2019 1:24 pm
RetiredCSProf wrote:
Thu Nov 07, 2019 12:49 pm

No. IRS rule is that you must satisfy your RMD before converting to a Roth in a given calendar year. You can distribute your RMD into a taxable account in January, then do a Roth conversion, and take monthly withdrawals from the taxable account.
Can you refer me to the exact IRS rule on that, for my education? I looked briefly at the IRS website, form 8606 and found nothing that talks about timing.
From IRS Pub 590-B:
Required minimum distribution. The amount that must be distributed each year is referred to as the required minimum distribution.
Distributions not eligible for rollover. Amounts that must be distributed (required minimum distributions) during a particular year aren't eligible for rollover treatment.
So it looks like I can convert $ to Roth in January as long as I take my full RMD amount by the end of the year.


It took me quite a while but I finally found a source that quotes the IRS saying RMDs must be taken first. It is NOT in IRS Pub 590-B, but rather in their Code of Federal Regulations (CFRs) in Q&A format.


First, it is easier to read this article which provides a good explanation, than the CFR. Near the end, it says:
https://www.marottaonmoney.com/roth-conversion-take-your-required-minimum-distribution-out-first/ wrote: To ensure this happens correctly, they have made a rule that, “Amounts that must be distributed (required minimum distributions) during a particular year are not eligible for rollover treatment” (from IRS Publication 590-B). They explain further in 26 CFR 1.402(c)-2 of the IRS code, “For example, if an employee is required under section 401(a)(9) to receive a required minimum distribution for a calendar year of $5,000 and the employee receives a total of $7,200 in that year, the first $5,000 distributed will be treated as the required minimum distribution and will not be an eligible rollover distribution and the remaining $2,200 will be an eligible rollover distribution if it otherwise qualifies.”

Given those rules, the RMD portion of that check is not eligible for deposit into a different IRA. Your RMD for the year must be withdrawn from the account first and then any additional assets may be rolled over into a new account.

Although the IRS made this rule because of rollover contributions, the rules apply to direct rollovers as well. Before you can transfer funds from one retirement account to another, you must distribute your RMD for the year from the account.

Because the IRS views Roth conversions through IRA Rollover rules, before you convert anything, you must first satisfy your RMD, withdrawing those funds and keeping them out of retirement accounts.
The CFR the article references is to some Q&As the IRS provided for "clarification". The answer to question 7 is what the article references. To read the CFR yourself, go to:

https://www.law.cornell.edu/cfr/text/26/1.402%28c%29-2
Nice job.

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CAsage
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Re: Best month to take RMDs?

Post by CAsage » Fri Nov 08, 2019 10:53 am

celia wrote:
Fri Nov 08, 2019 2:41 am

It took me quite a while but I finally found a source that quotes the IRS saying RMDs must be taken first. It is NOT in IRS Pub 590-B, but rather in their Code of Federal Regulations (CFRs) in Q&A format.
Celia, thank you for digging up the related reference.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

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Re: Best month to take RMDs?

Post by celia » Fri Nov 08, 2019 10:57 am

Thanks. This kept bugging me until I found the reference. (I’m persistent when something means a lot to me.)

I know this question will re-appear in a year or two and I won’t be able to locate this thread so I also edited the wiki pages for Roth IRA Conversions and Required Minimum Distributions with an external link to the same article.
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.

RetiredCSProf
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Re: Best month to take RMDs?

Post by RetiredCSProf » Fri Nov 08, 2019 12:38 pm

celia wrote:
Fri Nov 08, 2019 10:57 am
Thanks. This kept bugging me until I found the reference. (I’m persistent when something means a lot to me.)

I know this question will re-appear in a year or two and I won’t be able to locate this thread so I also edited the wiki pages for Roth IRA Conversions and Required Minimum Distributions with an external link to the same article.
Thanks! I tried looking also, but you are more persistent than I am.

Last year, I took my first RMD and then did a Roth conversion in late December over the phone, with Fido. The Fido advisor asked me to assure him, on a recorded line, that I had satisfied the RMD distribution before converting to Roth. He had no way of confirming this because he would not know what other tax-deferred accounts I held and whether I had satisfied the RMD for all my tax-deferred accounts.

So, it's up to the IRS to catch it and inflict a tax penalty if they choose.

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