I generally wait to take my RMD from my IRA at the end of the year. Don’t know why, except for my membership in the Procrastinator’s Club (Gold Star member!).
But an article in the Journal suggesting quarterly withdrawals or some other schedule got me thinking:
Do I expect the market to be higher or lower at the end of the year? If I wait until December, then I have no choice, I have to withdraw the monies or face incredibly severe penalties.
So, if I expect the market to be lower, the better strategy would be to sell some of the positions in there and cash it out now. Of course if I just leave enough cash (in money markets, or short term CDs) to pay it in December then no harm no foul.
I do all my tax planning, Roth Conversions and withdrawals the last week of the year, whether the market is up, or down. Forty plus years of investment performance has convinced me that trying to time the market results in wasted effort and lower returns.
Depending on how you look at it, it may not matter one way or the other. I haven’t ever taken an RMD so take whatever I say with a large grain of salt. First of all, the amount is already determined in December of the previous year, so that won’t change either way. If you look at your investments as a whole, all the taxable, the pre-tax, and the no-tax buckets, and you balance you desired allocation across all of them, then in theory, when you “withdraw” from an IRA, it is effectively simply a transfer from one account (IRA) to another (taxable), and a liability of taxes of course (and taxes are just part of the usual annual expenses). So if you need to sell 100 shares of ABCD in the IRA, and them move that cash to your taxable account, since you liked the position before, you can simply buy 100 shares of ABCD in your taxable account and everything remains the same. But since there are taxes due, and you want to keep enough cash to pay the taxes, you might only be able to buy 75 or 85 shares of ABCD, but the general principle still remains - if you liked the position before, you should like it ten minutes later after the money moves from IRA to taxable. Now, if you didn’t like the position before, then WHY didn’t you sell the ABCD previously? If they allowed RMDs “in kind” (the actual shares or bonds valued on the day of transfer), then I think more people would have this mindset.
Now since the AMOUNT is pre-determined, then the number of shares that must be sold will change throughout the year. But since there is no reliable way to know if the market will be lower, higher, or flat, then you may as well choose randomly. Can do at the beginning of the year, can do at the end, or quarterly (if you don’t mind the slightly additional work). Sometimes, if your stocks have sudden large gains during the year, and you think they are overvalued, you might want to sell [some of] them anyway at that time. But that still doesn’t determine when the actual cash moves from the IRA account to the taxable account.
Since the amount is predetermined, if the market is down when you make your required withdrawal then you are taking out a larger percentage of your account and leaving fewer shares to regrow tax-deferred.
Yep. I get about 75% of my taxable income in the 4th quarter, and typically don’t have any Federal income tax liability until Q3. (Though I expect that will change in about 10 months when I start taking SS at age 70.)
I am not yet taking RMD’s, but I just transferred roughly 4% of my regular IRA to my Roth IRA because the market is down, and I need to move as much of my money as I can from my IRA to my Roth to 1) reduce my tax bill when I take RMD’s, and 2) reduce the tax bill for my children if there is anything to inherit. I will do the same with my RMD’s unless I need the money.
If you plan to reinvest the distribution (and reduce your RMD next year) you transfer more shares when market price is down. Tax payment this year does not change regardless of share price.
I manage my elderly mother’s IRA (she is 90 and in assisted living). I have been taking out her RMD the first business day of January. Remember reading an article years ago about the complication of dealing with an untaken RMD after death. Plus, I estimate what her RMD will be for next year and keep that in cash so not too worried about the market going up or down.
The biggest thing to her advantage, doesn’t need the RMD to live off of. Her teacher’s retirement and military retirement cover everything so far.