RMD & Charitable Contribution

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sunshine47
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RMD & Charitable Contribution

Post by sunshine47 » Mon Sep 09, 2019 10:22 am

Other than several CD’s, our retirement funds are invested with Vanguard. My wife and I are 72 and have been living comfortably on Social Security and my pension so, at least for the next several years, plan to continue to reinvest our Vanguard earnings and RMD’s except to make an annual charitable contribution to our church. I would appreciate your advice about the best way to accomplish this.

We have the following investments with Vanguard:

Me
IRA - VBTLX Total Bond Market Index Fund: $440,000
IRA - VTSAX Total Stock Market Index Fund: $17,000
IRA – VTIAX Total Intl Stock Market Index Fund: $148,000
IRA – VTABX Total Intl Bond Index Fund: $196,000

My wife
IRA – VTSMX Total Stock Market Index Fund: $6,000

Joint Brokerage Account
VTSAX Total Stock Market Index Fund: $260,000

We are reasonably comfortable with our asset mix of 60% bonds and 40% stocks.

This year I have to take a RMD of $28,400 and my wife an RMD of $190. We plan to make a charitable contribution to our church from our RMD of $10,000.

When we did our RMD last year we blindly took it all out of the VTIAX Total Stock Market Index Fund and moved it to the Joint Brokerage Account (VTSAX Total Stock Market Index Fund) except for a $7,000 charitable contribution. There must be a strategy we should be following.

How would you suggest reinvesting our required RMD and making our charitable contribution this year and in the future?

We would be very willing to provide additional information if needed.

Thank you.

MrBeaver
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Re: RMD & Charitable Contribution

Post by MrBeaver » Mon Sep 09, 2019 11:05 am

sunshine47 wrote:
Mon Sep 09, 2019 10:22 am
How would you suggest reinvesting our required RMD and making our charitable contribution this year and in the future?
Given the 7k charitable contribution and the 2017 tax code changes, I'll assume that you don't already have other deductions that exceed your standard deduction. If that's true, it would likely help you to look into Qualified Charitable Distributions:
https://www.bogleheads.org/wiki/Qualifi ... tributions

If that assumption is not true and your income is also sufficient that your long term capital gains rate is ≥15%, then it may be more beneficial to donate appreciated shares from your brokerage account instead. If the church cannot accept donated securities, you could establish a Donor Advised Fund for tax purposes:
https://www.bogleheads.org/wiki/Donor_advised_fund
Last edited by MrBeaver on Mon Sep 09, 2019 1:53 pm, edited 1 time in total.

Topic Author
sunshine47
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Re: RMD & Charitable Contribution

Post by sunshine47 » Mon Sep 09, 2019 11:36 am

Thank you. We do not have other deductions that exceed our standard deduction. I wasn't aware of the Donor Advised Fund but the Vanguard minimum initial contribution is more than we are comfortable with at this time.

My question is more how do we determine which fund(s) should the RMD and the charitable contribution be taken from. I assume we will have to set up non-IRA funds to receive our RMD if we want to maintain our asset mix.

MrBeaver
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Re: RMD & Charitable Contribution

Post by MrBeaver » Mon Sep 09, 2019 11:45 am

Your current practice of having total stock market in taxable and bonds in tax-differed is consistent with this:
https://www.bogleheads.org/wiki/Tax-eff ... _placement

As such, the general suggestion would be to buy VTSAX, VTIAX, or similar tax-efficient investment in the taxable brokerage for RMD funds not spent (reinvested), and adjust holdings within the IRA in order to maintain your desired asset allocation.

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bengal22
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Re: RMD & Charitable Contribution

Post by bengal22 » Mon Sep 09, 2019 12:08 pm

I have a charity checking account with Dayton Foundation. No minimum. No fee. When I turn 70 they will get per instruction an amount for a QCD. They will handle getting the funds from my mutual fund. I will use the rest of my RMD to fund living and have some left for 529 and taxable investing.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

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Wiggums
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Re: RMD & Charitable Contribution

Post by Wiggums » Mon Sep 09, 2019 12:17 pm

The initial minimum contribution to the Fidelity DAF is $5000

https://www.fidelitycharitable.org/

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BL
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Re: RMD & Charitable Contribution

Post by BL » Mon Sep 09, 2019 12:39 pm

Are you taking advantage of the QCD as the non-taxed part of RMD?

As long as the 10k is taken as a QCD (call Vanguard to have a check to your charity C/O you mailed to you before the last 10k is taken out of the IRA), you can identify that amount as QCD on your 1040 tax form and thus it is not taxable. No need to bother with Donor Advised Funds as long as you have IRA, since you can give up to 100k to charities each year if you wish.

If you take 20k from the IRA stock fund and buy the same stock fund in taxable, I would consider that about even.
Maybe have dividends go to money market for some of QCD or take proportionally for QCD which leaves your portfolio. Or you can re-balance your IRA after withdrawals if necessary. Some just take from the funds that have grown the most, which is a way of re-balancing. I agree none of these ideas are exact, and would not necessarily satisfy some folks.

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David Jay
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Re: RMD & Charitable Contribution

Post by David Jay » Mon Sep 09, 2019 12:59 pm

Welcome to the forum!

As BL has suggested above, I would recommend researching the QCD (qualified charitable distribution), here is the Wiki link: https://www.bogleheads.org/wiki/Qualifi ... tributions
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FelixTheCat
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Re: RMD & Charitable Contribution

Post by FelixTheCat » Mon Sep 09, 2019 1:55 pm

sunshine47 wrote:
Mon Sep 09, 2019 11:36 am
I wasn't aware of the Donor Advised Fund but the Vanguard minimum initial contribution is more than we are comfortable with at this time.
A lot of Bogleheads have Fidelity's DAF because of the lower requirements https://www.fidelitycharitable.org/
Felix is a wonderful, wonderful cat.

RadAudit
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Re: RMD & Charitable Contribution

Post by RadAudit » Mon Sep 09, 2019 2:47 pm

sunshine47 wrote:
Mon Sep 09, 2019 11:36 am
My question is more how do we determine which fund(s) should the RMD and the charitable contribution be taken from.
I am 72. I have my QCDs and the remaining RMD taken from the bond funds in my IRA. Then I rebalance the portfolio from inside the IRA to its target AA, if the numbers before the rebalance exceed my bands.

The reasons (rationalizations?) are that this approach reduces the possibilities of sudden changes in equity values resulting in a larger hit to the portfolio than planned and I can usually (sometimes?) delay the rebalance until equities increase.

YMMV

PS: I don't know how familiar you are with the lingo on the board. Bogleheads sometimes talk about rebalancing to their target asset allocation. The rebalance bands are - in some cases - + / - 5% off target. The rebalance of the entire portfolio to its target AA is done inside the IRA to delay taxes due to the requisite buying / selling required to rebalance.
Last edited by RadAudit on Mon Sep 09, 2019 3:06 pm, edited 4 times in total.
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dodecahedron
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Re: RMD & Charitable Contribution

Post by dodecahedron » Mon Sep 09, 2019 2:57 pm

FelixTheCat wrote:
Mon Sep 09, 2019 1:55 pm
sunshine47 wrote:
Mon Sep 09, 2019 11:36 am
I wasn't aware of the Donor Advised Fund but the Vanguard minimum initial contribution is more than we are comfortable with at this time.
A lot of Bogleheads have Fidelity's DAF because of the lower requirements https://www.fidelitycharitable.org/
Schwab also has lower minimums (same as Fidelity´s.) I was able to move my Vanguard Admiral funds in-kind to a taxable brokerage account at Schwab. When I am ready to donate shares to my Schwab DAF, it just takes a few mouseclicks. If I do it while markets are open, the shares are moved and liquidated by the DAF at the same day´s closing NAV.

chemocean
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Re: RMD & Charitable Contribution

Post by chemocean » Mon Sep 09, 2019 3:47 pm

Although I am a year or so from RMDs, I have been staring to look at this issue. Especially in light of Bruce Steiner's article (Trusts and Estates, 2018, p. 43) suggesting that the Tax Cuts and Jobs Act of 2017 reduces the taxes of the Roth Conversion while the Law is in effect (through 2025). Roth conversions before RMDs reduces the amount I will need to take to as an RMD and pay taxes in the next higher tax bracket into which the RMD places me. This research provided me some insights on tax efficiency as outlined in Essentials of Successful Investing (p. 140). Stock index funds are very tax efficient in the taxable account in which non-consumed RMDs are placed since there is little turnover and most of the gains are in unrealized capital gains, for which taxes will not have to be paid by our beneficiary. However, I project that dividends from these stock index fund in a taxable account can not be avoided and could grow to substantial amounts in the far future (I hope). For me, I am looking at the lower dividend/share price percentage as the criteria to decide which index fund to put into the taxable account.
Also, an appreciated stock index fund can be donated as a charitable contribution, if I want to donate differently than giving QCDs. I understand that ETFs are easier to donate than mutual funds, so this may be another reason to convert the stock index mutual funds to stock index ETFs.

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CAsage
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Re: RMD & Charitable Contribution

Post by CAsage » Tue Sep 10, 2019 12:02 am

Small, foolish suggestion: Why not simply cash out your wife's IRA this year (or donate it all to charity) and be done with one whole account? That would simplify your account management. No difference to your overall lifestyle, but would save a bit of paper and fuss.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

Enkidu
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Re: RMD & Charitable Contribution

Post by Enkidu » Tue Sep 10, 2019 11:05 am

Here is what I think I would do:

Take the QCD from VTSAX, $10,000
Take the balance of VTSAX, $7000 as an RMD and move to VTSAX in your taxable account

Take the balance of your RMD from VTIAX $11,400 and withhold $4,100 for federal tax, assuming that you are in the 22% bracket.
Move the balance to VTIAX, $7,300 in your taxable account.

Take your wife's RMD and move to VTSAX $168 in your taxable account.

This will leave you with approximately the same 40/60 stock/bond allocation and the same ratio of U.S. / international equities.

In the future you can just take QCDs and RMDs from VTIAX and move the residual after tax withholding to VTIAX in your taxable account. Continue to take RMDs from your wife's account and direct to either VTSAX or VTIAX. Rebalancing should be minimal. Eventually you will deplete the VTIAX in the IRA and will need to start drawing QCDs and RMDs proportionally from bonds.

Topic Author
sunshine47
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Re: RMD & Charitable Contribution

Post by sunshine47 » Wed Sep 11, 2019 9:02 pm

Thank you very, very much for each of you taking the time to reply and for all of the valuable information! We now have a much better idea of what needs to be considered before taking our RMD and making our QCD. Thank you Enkidu for the very detailed suggestion. We realize we have a lot to learn before we will be able to make good decisions regarding our investments on our own. We feel it is wise to seek the advice of many experienced counselors. This forum is a wonderful place to do that. Thank you again.

drzzzzz
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Re: RMD & Charitable Contribution

Post by drzzzzz » Fri Sep 13, 2019 11:32 am

As many have noted you should do a QCD directly from the IRA account and use Vanguard who will make out the check and send it to you to forward to your charity. What we have started to do, however, is to transfer our RMD for the year to a Fidelity IRA since Fidelity will give you a book of checks on your IRA money market/settlement account and then you can write checks in any amount that you desire and mail them on to one or multiple charities during the course of the year as you desire. It's an easy way for me to track which disbursements were QCD since copies of the check are in the account. I believe Vanguard has a relatively high minimum donation amount for a QCD.

Alan S.
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Re: RMD & Charitable Contribution

Post by Alan S. » Fri Sep 13, 2019 9:00 pm

No one proposed doing this, but just a heads up that a donation to a DAF is not eligible as a QCD.

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grabiner
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Re: RMD & Charitable Contribution

Post by grabiner » Fri Sep 13, 2019 9:02 pm

Enkidu wrote:
Tue Sep 10, 2019 11:05 am
Here is what I think I would do:

Take the QCD from VTSAX, $10,000
Take the balance of VTSAX, $7000 as an RMD and move to VTSAX in your taxable account

Take the balance of your RMD from VTIAX $11,400 and withhold $4,100 for federal tax, assuming that you are in the 22% bracket.
Move the balance to VTIAX, $7,300 in your taxable account.

Take your wife's RMD and move to VTSAX $168 in your taxable account.

This will leave you with approximately the same 40/60 stock/bond allocation and the same ratio of U.S. / international equities.

In the future you can just take QCDs and RMDs from VTIAX and move the residual after tax withholding to VTIAX in your taxable account. Continue to take RMDs from your wife's account and direct to either VTSAX or VTIAX. Rebalancing should be minimal. Eventually you will deplete the VTIAX in the IRA and will need to start drawing QCDs and RMDs proportionally from bonds.
The reason for the ordering is that there is a significant advantage to holding stocks, rather than bonds, in a taxable account in your situation. You are living without using your investment portfolio, so you do not expect to sell these stocks during your lives. If you donate the stocks to charity, or leave them to your heirs, the capital-gains tax will never be owed.
Wiki David Grabiner

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