RMD Distribution: All in one go or spread out over year?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
skyhook59
Posts: 2
Joined: Wed Oct 31, 2018 4:10 pm

RMD Distribution: All in one go or spread out over year?

Post by skyhook59 » Sat Jan 11, 2020 10:01 am

I apologize if this has been "asked and answered" already - but I could not find it:

Is there any rule that forces me to take the entire RMD for a given year in one withdrawal?

Example:
  • Assume an RMD of $120 for a given year:
    Must I withdraw $120 in the first withdrawal from the traditional IRA?
    Or, could I just withdraw $10 per month?

btenny
Posts: 5210
Joined: Sun Oct 07, 2007 6:47 pm

Re: RMD Distribution: All in one go or spread out over year?

Post by btenny » Sat Jan 11, 2020 10:49 am

You can withdraw $10 per month or the full $120 in December or earlier as you desire. Just remember to pay your taxes on the withdrawn amount.

I do it a little different. I withdraw and send a group of QCD checks to my favorite charities in March. I do a second round of QCD checks to charities in October. Then in November I take out the rest of my RMD and move it to my taxable account. I do the November RMD to make sure all the QCD checks are cashed and the RMD paperwork gets completed and correct before year end. I also pay a bunch of federal and state taxes with this late RMD. I do a tax analysis and forecast the amount of excess tax I owe instead of paying taxes quarterly.

Good Luck.

dbr
Posts: 31153
Joined: Sun Mar 04, 2007 9:50 am

Re: RMD Distribution: All in one go or spread out over year?

Post by dbr » Sat Jan 11, 2020 10:51 am

I leave my RMD to year end and have my entire estimated tax withheld at that time.

tomd37
Posts: 3130
Joined: Thu Mar 01, 2007 10:39 pm
Location: Middle Tennessee

Re: RMD Distribution: All in one go or spread out over year?

Post by tomd37 » Sat Jan 11, 2020 11:09 am

I do two withdrawals per year; one for my Qualified Charitable Distribution (QCD) and the other for my remaining Required Minimum Distribution (RMD). I do and complete the QCD prior to doing the remaining RMD. There is a sequencing involved and maybe Alan S will provide input and a detailed reasoning/explanation. When I do the RMD portion I adjust my federal tax withholding to just about meet my total federal tax liability. I do not have any state income tax where I live.

I have federal tax withheld monthly from my social security benefit, military pension, and the remaining necessary amount withheld from the final RMD. I always try to end up owing the federal government less than $300 when filing federal taxes. I try not to have a refund coming in the event my or our social security number should be used by someone else to file a fraudulent return. That would hold up any refund by many months. I also realize some people do not withhold from a pension or social security, but those withholding amounts or percentages were set as many as forty years ago (military) and the less they are adjusted, the less chance of errors by someone.
Tom D.

jacksonm
Posts: 203
Joined: Tue Oct 16, 2018 11:48 am

Re: RMD Distribution: All in one go or spread out over year?

Post by jacksonm » Sat Jan 11, 2020 11:18 am

dbr wrote:
Sat Jan 11, 2020 10:51 am
I leave my RMD to year end and have my entire estimated tax withheld at that time.
Ditto. This is what I did with my first RMD taken a couple of weeks ago, following the strategy as outlined in this article....

https://rodgers-associates.com/blog/pay ... g-ira-rmd/

Now I just hope Turbo Tax recognizes the strategy and does not conclude that I owe a penalty.

Topic Author
skyhook59
Posts: 2
Joined: Wed Oct 31, 2018 4:10 pm

Re: RMD Distribution: All in one go or spread out over year?

Post by skyhook59 » Sun Jan 12, 2020 3:05 pm

Thanks to all for taking the time to explain this to me. Have a good weekend!

User avatar
OAG
Posts: 1139
Joined: Sat Mar 03, 2007 11:54 am
Location: Currently Central Ohio, USA

Re: RMD Distribution: All in one go or spread out over year?

Post by OAG » Sun Jan 12, 2020 7:44 pm

dbr wrote:
Sat Jan 11, 2020 10:51 am
I leave my RMD to year end and have my entire estimated tax withheld at that time.
+1 on that. RMD is set on 12/31 of prior year. Very easy to just let it grow and the RMD to come out 100% in December of current year. Even better if the amount equals or exceeds annual estimated Federal (in some cases (most Credit Unions) State Income Taxes can, if appropriate, be paid out of the RMD at the same time).
OAG=Old Army Guy. Retired CW4 USA (US Army) in 1979 21 years of service @ 38.

Sandwich
Posts: 21
Joined: Thu Jul 21, 2016 8:04 pm

Re: RMD Distribution: All in one go or spread out over year?

Post by Sandwich » Sun Jan 12, 2020 8:00 pm

Another perspective to consider ….what happens if the IRA holder passes away near the end of the year ?

Real life scenario involved a relative who had his RMD set for mid-December. He passed away a month or so before the RMD date. Upon notifying the IRA custodian of the death, the account was frozen and the RMD "cancelled" pending submission of the death certificate and beneficiary claim forms. It took several weeks for the death certificate and forms to be available and to process. Surviving spouse was able to have funds transferred to her IRA … less the RMD in mid-December.

If the deceased had passed away later in the year …. the RMD would not have processed by the end of the year and may have resulted in additional complications like appealing for relief from the IRS for missing the 12/31 deadline due to death of original owner.

tomd37
Posts: 3130
Joined: Thu Mar 01, 2007 10:39 pm
Location: Middle Tennessee

Re: RMD Distribution: All in one go or spread out over year?

Post by tomd37 » Sun Jan 12, 2020 8:31 pm

Sandwich - Appealing to the IRS for waiver of the penalty for not taking a RMD on time is almost a virtual guarantee if proper steps are taken by the recipient and the actual payment of the RMD is documented properly. I suspect this happens quite often in this country's populous each year. I have done a number of waiver requests for the tax clients I deal with and none has ever been turned down by the IRS. The IRS just wants their money on time or as quickly thereafter as is reasonable :!:
Tom D.

Sandwich
Posts: 21
Joined: Thu Jul 21, 2016 8:04 pm

Re: RMD Distribution: All in one go or spread out over year?

Post by Sandwich » Sun Jan 12, 2020 8:55 pm

tomd37 wrote:
Sun Jan 12, 2020 8:31 pm
… Appealing to the IRS for waiver of the penalty for not taking a RMD on time is almost a virtual guarantee if proper steps are taken by the recipient and the actual payment of the RMD is documented properly.....
I suspected that a waiver, if necessary, would have been granted by the IRS, if the RMD had not gotten accomplished by 12/31. However, given the onslaught of paperwork to handle the deceased affairs, the less paperwork the better.

I have encouraged the surviving spouse to take her RMD in the early part of the year.

… I just executed my own mom's (as her POA) RMD from her Vanguard IRA last week. :D

sport
Posts: 8713
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: RMD Distribution: All in one go or spread out over year?

Post by sport » Sun Jan 12, 2020 9:07 pm

Sandwich wrote:
Sun Jan 12, 2020 8:55 pm
tomd37 wrote:
Sun Jan 12, 2020 8:31 pm
… Appealing to the IRS for waiver of the penalty for not taking a RMD on time is almost a virtual guarantee if proper steps are taken by the recipient and the actual payment of the RMD is documented properly.....
I suspected that a waiver, if necessary, would have been granted by the IRS, if the RMD had not gotten accomplished by 12/31. However, given the onslaught of paperwork to handle the deceased affairs, the less paperwork the better.

I have encouraged the surviving spouse to take her RMD in the early part of the year.

… I just executed my own mom's (as her POA) RMD from her Vanguard IRA last week. :D
That eliminates the opportunity to make QCD donations later in the year.

Sandwich
Posts: 21
Joined: Thu Jul 21, 2016 8:04 pm

Re: RMD Distribution: All in one go or spread out over year?

Post by Sandwich » Mon Jan 13, 2020 12:14 am

sport wrote:
Sun Jan 12, 2020 9:07 pm
...That eliminates the opportunity to make QCD donations later in the year.
Unfortunately, Mom is not in the position to pay for anything except her care facility and taxes. So this does not apply to her.

I have mentioned to another elder in the family of the option of using her RMD as a QCD to cover her annual church "pledge". :beer

Ron
Posts: 6571
Joined: Fri Feb 23, 2007 7:46 pm

Re: RMD Distribution: All in one go or spread out over year?

Post by Ron » Mon Jan 13, 2020 2:09 pm

Since the vast amount of dividends we receive fall into the last three weeks of the financial year, we take care of our respective RMD's on the first business day of the new year with those cash dividends from our TIRA's (we reinvest all dividends for our respective Roth IRA's as received during the year). We have followed this plan for the last three years we've been subject to RMD's.

The RMD's, taken from our respective Fido & VG accounts are used for the following:
1. Fulfill the requirement for the year of required RMD's.
2. Pay taxes on the RMD withdrawals.
3. Pay taxes on the remaining of our retirement income; SS, SPIA, pensions. Since these payments are static throughout the year, it's easy to forecast what our gross income will be, along with forecast FIT (no state/local income tax in our case). Of course, we still have to add interest from our respective cash interest/dividends, but that's only a few $K that will affect our actual gross income for the current year.
4. Any leftover cash that remains after our RMD's are taken is reinvested across our universe of TIRA holdings, leaving $1.00 in our respective core holdings.

The remaining withdrawal is basically split between paying for enhanced travel (e.g. business/first class) for trips we've already scheduled for the year with the remainder going into short term savings for the "what if's" in life. We don't reinvest the excess since we've lucky to have substantial retirement benefits/income to cover all but a small amount of our budget, along with our respective retirement funds.

In the last three years, our RMD's have accounted for 3.1, 3.1, 3.2% of our joint retirement account withdrawals (much less if you include our funds in our respective bank accounts). We probably hold too much cash in our bank accounts, but that's a result of both being brought up poor, along with the financial challenges we faced during our first decade of marriage (celebrated our 50th, last year).

We don't try to maximize our returns by waiting until year end to satisfy our RMD's. Being a bit conservative, we would rather satisfy a financial "obligation" (which the RMD process is) rather than hope that market returns cover (at least partially) our RMD's at year end.

In the three years we've been subject to RMD's, the market has been up two years, down one. That's a 33% market down factor we're not willing to live with, especially since we're fortunate to have our remaining retirement well covered from a financial sense. We don't have to squeeze every last possible penny from our financial resources to live the life we wish.

As far as the QCD comments? We don't and will not contribute via that option. Our remainder estate will be used to finance the needs of our disabled adult "child" after we're gone. As they say, "charity begins at home"; that's our situation.

I also want to get this financial exercise out of the way for the year, for the benefit of my spouse should I "check out" before year end. She is well aware of our financials, but does not do transactions (such as RMD's) on an ongoing basis. This is just one of those "what if" items on our list that she doesn't have to worry about should I leave the party early :wink: . After I'm gone, she can have an accountant take care of the process under any rules that they may agree on.

FWIW,

- Ron

Post Reply