When to take RMD for stretch IRA?

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hbdad
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Joined: Fri Dec 13, 2019 3:29 pm

When to take RMD for stretch IRA?

Post by hbdad » Thu Feb 13, 2020 11:42 pm

I inherited an IRA in 2018. I opted for the stretch option. I would like to preserve and grow the amount in the account. My question is not what month or time of year to take my RMD. My question is, would it be best to take RMD as soon as the growth in any given year is equal to the amount of the RMD I must take? For instance, for 2020, the account has grown by the amount I need to take for the year. If I take RMD now, and market goes down, I have basically 22 months to wait for the market to go up before I need to take another RMD. Is that the optimal choice? Or should I just take at end of year and allow for an entire years worth of growth or loss? Thanks.

Beaker12
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Re: When to take RMD for stretch IRA?

Post by Beaker12 » Fri Feb 14, 2020 8:05 am

We setup the Vanguard RMD service to automatically send us a check. To me the peace of mind of knowing I won’t forget to pull the RMD is worth it.

aristotelian
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Re: When to take RMD for stretch IRA?

Post by aristotelian » Fri Feb 14, 2020 8:07 am

I would recommend early in the year so that if something happens to you, the RMD will have already been taken and that will be one less thing for your beneficiary to worry about. Market timing is irrelevant since you can reinvest the RMD as soon as it is taken.

Topic Author
hbdad
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Re: When to take RMD for stretch IRA?

Post by hbdad » Fri Feb 14, 2020 3:04 pm

aristotelian wrote:
Fri Feb 14, 2020 8:07 am
I would recommend early in the year so that if something happens to you, the RMD will have already been taken and that will be one less thing for your beneficiary to worry about. Market timing is irrelevant since you can reinvest the RMD as soon as it is taken.
Timing is irrelevant if I reinvest the RMD. But assuming one does not reinvest the RMD but uses it for other purposes, when would you pull it out? I'm not focused on or asking when in the year chronologically speaking, but rather, would you pull it out once the account has gained enough to cover the RMD? Ex. Inherited account with 100k. I want to keep and grow the 100k if possible. If RMD is 5k, would you take the RMD as soon as the account grows to 105k (whenever in the year that might be)? In my OP hypothetical, if the account has grown to 105 in February and I take my RMD in February, and the market goes down in March, I have 22 months (Dec of following year) to wait for the market to go up.

aristotelian
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Re: When to take RMD for stretch IRA?

Post by aristotelian » Fri Feb 14, 2020 3:09 pm

hbdad wrote:
Fri Feb 14, 2020 3:04 pm
aristotelian wrote:
Fri Feb 14, 2020 8:07 am
I would recommend early in the year so that if something happens to you, the RMD will have already been taken and that will be one less thing for your beneficiary to worry about. Market timing is irrelevant since you can reinvest the RMD as soon as it is taken.
Timing is irrelevant if I reinvest the RMD. But assuming one does not reinvest the RMD but uses it for other purposes, when would you pull it out? I'm not focused on or asking when in the year chronologically speaking, but rather, would you pull it out once the account has gained enough to cover the RMD? Ex. Inherited account with 100k. I want to keep and grow the 100k if possible. If RMD is 5k, would you take the RMD as soon as the account grows to 105k (whenever in the year that might be)? In my OP hypothetical, if the account has grown to 105 in February and I take my RMD in February, and the market goes down in March, I have 22 months (Dec of following year) to wait for the market to go up.
I would still just pull as soon as possible. You don't want gains to accrue in the account because they will eventually be taxed as income. Any funds that you are not spending immediately would be better off growing in your taxable account where gains would be taxed as LTCG. My approach to pretax accounts is to liquidate as quickly as possible while staying in a low tax bracket. The longer you leave money in the account the more you are subjecting to eventual tax.

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BolderBoy
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Re: When to take RMD for stretch IRA?

Post by BolderBoy » Fri Feb 14, 2020 3:18 pm

aristotelian wrote:
Fri Feb 14, 2020 8:07 am
I would recommend early in the year so that if something happens to you, the RMD will have already been taken and that will be one less thing for your beneficiary to worry about.
I like this answer.

My parents took their RMDs in January. They died in a later month in the year. I didn't have to deal with the RMD issue.

My buddy's dad had two IRAs. His dad had separate RMDs set up for each IRA. One IRA had the RMD withdrawn in May, the other scheduled for December. His dad died in November. My buddy said that dealing with the RMD requirement after his dad died was a hassle he wished he didn't have to have faced.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

Topic Author
hbdad
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Re: When to take RMD for stretch IRA?

Post by hbdad » Fri Feb 14, 2020 6:54 pm

With regard to reinvesting the RMD, I do not have any taxable accounts. I only have this, non-inherited Roth, and 457(b). I’ve been reading through other posts on this topic but a little confused. I do not currently max out Roth contributions. Would you recommend taking RMD, paying taxes on it, and investing the net into my Roth? The other option is to take the equivalent amount of the RMD from my paycheck and put it into the pretax 457(b). But if I’m wanting to avoid taxes later in life, or have the option to use contributions for other things like college expenses, the Roth seems the way to go.

retire57
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Re: When to take RMD for stretch IRA?

Post by retire57 » Fri Feb 14, 2020 9:30 pm

Beaker12 wrote:
Fri Feb 14, 2020 8:05 am
We setup the Vanguard RMD service to automatically send us a check. To me the peace of mind of knowing I won’t forget to pull the RMD is worth it.
We did the same except the $ is deposited annually in our MM.

RickyAZ
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Re: When to take RMD for stretch IRA?

Post by RickyAZ » Fri Feb 14, 2020 9:47 pm

You could just take it in kind with a small cash portion to cover the withholding (if you want any withheld) Set up the Inherited IRA to match the holdings in your taxable account and move the RMD at the start of each year. It's as if you're buying new shares, the basis will be whatever the price was at the time of the transfer. Use the In kind transfer form. Easy and you can forget about it for 364 more days.

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celia
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Re: When to take RMD for stretch IRA?

Post by celia » Fri Feb 14, 2020 10:15 pm

hbdad wrote:
Thu Feb 13, 2020 11:42 pm
My question is, would it be best to take RMD as soon as the growth in any given year is equal to the amount of the RMD I must take?
The problem with this is that the markets could go down or only grow a little bit and you might thus forget to take the RMD. As time goes down, your divisor gets smaller. What will you do when you have to withdraw 10% and the markets don’t return that much?
For instance, for 2020, the account has grown by the amount I need to take for the year. If I take RMD now, and market goes down, I have basically 22 months to wait for the market to go up before I need to take another RMD. Is that the optimal choice?
No.
Or should I just take at end of year and allow for an entire years worth of growth or loss?
I would rather take it closer to the beginning of the year and have the growth happen in taxable where I would pay less on taxes on future growth (LTCG) rather than paying future regular tax rates on that growth in the pre-tax account.

I believe in having your maximum growth happen in Roth (where the growth will be tax-free). That means stock funds. The pre-tax traditional IRA should be invested in bonds to keep your future taxes from increasing too fast. However, this location of funds is less important that what your Asset Allocation is % in stocks vs % in bonds).

If you want to try to keep the value of an account growing while taking RMDs from it, do that in an Inherited Roth instead. We drag our feet on taking those RMDs as we’ve been able to grow the account more than its original value by using a strong stock fund. But even that is getting harder to do as the percentage to be removed increases 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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