How do you invest your required minimum distributions (RMDs)

[Claudia Whitten]

I'm not at RMD age yet, but I'm already thinking about how to invest my RMD funds once they're out of my tax advantaged account. I'm also assuming that many here generally do not spend all of their RMD funds.

So how do you invest it? Do you attempt to replicate your asset allocation outside of the tax advantaged account? What's your thinking on this and what approach have you taken? Lessons learned?

[Abe]

So how do you invest it? Do you attempt to replicate your asset allocation outside of the tax advantaged account?

Yes, Money inside my IRA is invested in the VG S&P 500 Index Fund (VFIAX). When I get my RMD I invest it in the VG Total Stock Mkt Index fund (VTSAX).

[hudson]

I'm not at RMD age yet, but I'm already thinking about how to invest my RMD funds once they're out of my tax advantaged account. I'm also assuming that many here generally do not spend all of their RMD funds.

So how do you invest it? Do you attempt to replicate your asset allocation outside of the tax advantaged account? What's your thinking on this and what approach have you taken? Lessons learned?

In November, I figure how much I'm going to owe for taxes. I do an RMD on Dec. 15 to withhold what I owe.
With the remainder, I follow my written plan which says:
"CDs (FDIC/NCUA)
Treasuries including TIPS...probably 50-70% TIPS
High Yield Savings (FDIC/NCUA)…unless treasury bills are a better deal.
Match the average duration of fixed income holdings with investment horizon"

Bottom Line: Withholding first, the rest goes to highest quality fixed income.

[Gd_Enf_56]

^ Hudson, if you don't mind sharing, what are your RMD funds invested in while in the tax-deferred IRA/401k?

[hudson]

^ Hudson, if you don't mind sharing, what are your RMD funds invested in while in the tax-deferred IRA/401k?

The RMD from my IRAs will go to withholding and to my taxable account.
If I don't spend it, I'll buy treasuries or CDS depending on the available rates.
Long retired...age 76

My IRAs are all treasuries including TIPS.
No stocks, no funds, no ETFs, and no expenses.

[tetractys]

I pay income taxes on the RMD and then spend or reinvest the remainder tax consciously. My taxable accounts relate to without mirroring tax deferred.

[jebmke]

We are planning to give ours away; but if not, I'd put it all in equity. We are no longer buying bonds -- at least for now. Our plan is to let equity drift up as we get older.

[RetiredAL]

I routinely withdraw from my IRA to cover our monthly expenses. My RMD residual initially goes to cash (5%) in Taxable then gets swept up in re-balancing as needed. Taxable is nominally 60/40 to 65/35. These accounts are at Fidelity. The taxable holdings are typically FSKAX and right now 80% of fixed is a T-Bill ladder.

[bertilak]

Whatever I sell from my IRA to satisfy the RMD gets invested in my taxable account. Generally this is in the same asset I sold in my IRA.

I say generally because I take the opportunity to top up any assets that need topping up to maintain my AA. Since I do tax withholding from the RMD, I come up short so need to juggle things a bit (usually in the IRA).

[steadyosmosis]

I'm not at RMD age yet, but I'm already thinking about how to invest my RMD funds once they're out of my tax advantaged account. I'm also assuming that many here generally do not spend all of their RMD funds.

So how do you invest it? Do you attempt to replicate your asset allocation outside of the tax advantaged account? What's your thinking on this and what approach have you taken? Lessons learned?

No RMDs for me yet, but I foresee any excess being re-invested in the taxable account (VTI).

[ralph124cf]

First part of RMD goes to Qualified Charitable Donations, the rest goes to cruises. Age 75.

[RyeBourbon]

First part of RMD goes to Qualified Charitable Donations, the rest goes to cruises. Age 75.

That's the way to do it.

[Grasshopper]

Hear, hear, my social security is for travel, my RMD is for better travel.

[dbr]

Usually enough is withheld from the RMD to cover all state and Federal income tax for the year and the rest is deposited in a checking account for spending. Because the RMD involves selling bonds in a tax deferred account and dumps a certain amount of cash into taxable accounts, it might be appropriate to consider rebalancing the asset allocation depending what happens to balances in other assets in the taxable account. For some time now I don't rebalance anymore as my affairs depend too little on exact asset allocation to bother. We also have dividends from equities in the taxable account directly deposited to the checking account. Sometimes there is too much cash there and sometimes it is about right. Selling equities in taxable is annoying because there is a tax cost. About 80% of the value of my equities is unrealized gain. That gain can be untaxed by giving it away tax free or by letting it go to heirs tax free on basis step-up. It could happen that someday I would consume some of that at a tax cost.

[best2u]

Use it to purchase I bonds. Hope I will live long enough, to have enough set aside to cover my poker losses when I play cards at a nursing home some day.

[AlwaysaQ]

After QCDs and expected taxes come out of the RMD I move the rest to my taxable account. I have been buying Treasury Bills and Treasury Notes in taxable recently. At almost 83 I am about 50% equities.

[PaulW]

At age 78/80 we take RMD’s when we need money. In November, we use any RMD balance for QCD’s, which avoids income tax on those distributions. We feel fortunate that our Roth has not been needed and believe that our taxable is adequate as it stands.

[jerryk68]

I invest in my grandchildren's education by investing in their 529, Coverdell or UGMA accounts.

[grabiner]

If you have an RMD you don't need to spend, you can move it to another account and keep it in the same asset class. Usually, if you are in this situation, you will prefer to hold stock in your taxable account, because some of that stock will go to your heirs with no capital-gains tax. Thus you should take the RMD from a stock fund in your IRA if possible, so that you keep your taxable account all stock.

[Claudia Whitten]

No RMDs for me yet, but I foresee any excess being re-invested in the taxable account (VTI).

Same here.

[RadAudit]

I use RMDs to donate to charities (QCDs), travel, pay taxes and reinvest in a total world stock fund to move the portfolio AA toward a slightly more aggressive allocation. Current targeted AA is to 60/40 from 50/50.

[jocdoc]

An alternative RMD strategy is to have RMDs distributed in shares instead of dollars to taxable account.

[glitchy]

I've never felt moved to treat it differently than other funds. The part that's not withheld for taxes is going into my taxable, which means it's going into equities. I rebalance equities->FI in tax-advantaged to compensate.

Eventually I'm going to run out of room in tax-advantaged for fixed income, then it will get more interesting, but it's not an RMD problem per se, only an asset placement problem.

[jaqenhghar]

An alternative RMD strategy is to have RMDs distributed in shares instead of dollars to taxable account.

Would you mind sharing more about this? Not familiar with this approach.

[avalpert1]

An RMD is simply a tax accounting change - it really shouldn't impact your asset allocation or spending plans. Don't let mental accounting overtake rational decision making.

[avalpert1]

An alternative RMD strategy is to have RMDs distributed in shares instead of dollars to taxable account.

Would you mind sharing more about this? Not familiar with this approach.

It is no different than taking the distribution in cash and rebuying the assets at the same price you sold. Nothing particularly advantageous about it - you might save a day out of the market but you give up control over the exact amount of the distribution.

[jerryk68]

About 13 years ago when my RMD started plus a little from my savings I decided to give the money to my grandchildren for their education. At that time, I had two grandchildren and I funded each so that by the time they were six they had enough money from my contributions and the market for three years at their state state supported university for tuition, room and board. Then I let the market take over to fund the last year. Now I have five grandchildren. The first two have enough to probably get their masters degree plus. The third grandchild was six last February and with this years market returns probably now has enough for four years of college. The fourth grandchild has enough for about two years at their state university especially with this years market returns. The fifth was just born and I am just starting my adventure with him.

I do not manage the kids accounts. Their parents control the accounts I just give them advice where to invest the money. My purpose is their education and not to make sure each grandchild gets exactly the same amount as the others. I really don't care where they go to school I just want them to have enough to get educated. Is it fair? Probably not but my purpose is their education.

[GG1273]

Lots of interesting choices in the replies.

Has anyone used the Vanguard Tax Managed Balanced Fund or the Vanguard Tax Managed Capital Appreication Fund to house their distributions?

[irishguy]

My traditional ira is all fixed income matched to duration. So the rmd's come from treasury money market and rolled to that in taxable after state and local taxes are withheld. I come from high tax state. If I need to balance to 40/60 allocation I would put some in total stock market index.

[irishguy]

My traditional ira is all fixed income matched to duration. So the rmd's come from treasury money market and rolled to that in taxable after state and local taxes are withheld. I come from high tax state. If I need to balance to 40/60 allocation I would put some in total stock market index.