I wonder if the government will decide to suspend RMDs this year as they have done before when the market was so shaky. Hate to have to sell stocks that have lost so much value to pay RMD.
Birgit
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Tough decisions⌠and do you sell the ones that have faired the best? Or trim, close out the ones that have been hit the hardest?
Ideal situation down the road: Project what RMD needs will be for the immediate future and build a cash balance to meet them. Still would possibly require reducing/closing some positions and more decisions.
IRAâs and 401kâs: Nice when building them up, getting the rich forgiveness of tax on the money going in, then it comes time to pay the piper. Nice to live long enough to have to withdraw, and to have the wherewithal to work with.
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Birgit:âI wonder if the government will decide to suspend RMDs this year as they have done before when the market was so shaky. Hate to have to sell stocks that have lost so much value to pay RMD.â
For those with âshort time horizonsâ - like having to sell every year to fund your RMDâŚthe lessons of the past should be kept in mind.
My IRA is 50/50 between bonds/REITS and mutual funds. I typically keep a six month cushion of cash to fund the IRA so I only sell once every six months for fund another six months. In addition, the dividends and interest contribute about 40% of what I will need for the year for RMDâŚso I donât have to sell in a bear market.
Yeah, the time to have sold might have been Jan 2 for the entire year.
then again, one way or another, the war might be over in six or 8 months and who knows what the market will do?
I doubt that the RMD will be suspended. Canât do that every time there is âfinancial difficultyâ and the government needs those tax dollars now.
t
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Brigit, what I did was transfer stocks that have been hit the hardest into my taxable account. Its called an in kind transfer. My thinking is that when they recover they will be subject to long term capital gains.
Bill
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Similarly, you donât have to spend the RMD. You can reinvest it in a taxable account and pay capital gains rates on the gain. (Or no taxes on the gain when your heirs inherit.)
That makes Roth conversions attractive when markets are down.
The rub is you have to pay income taxes on the distributions. In my case taxes are a big part of the RMD. Its easier than paying estimated taxes.
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I pay income tax along with the RMD distribution. The idea of transferring stock in kind into my taxable account is interesting. Will need to look into that!!! Still need to figure out how to pay income tax that way. I use the RMD to pay all my income tax for the year.
Birgit
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Birgit: I wonder if the government will decide to suspend RMDs this year as they have done before when the market was so shaky. Hate to have to sell stocks that have lost so much value to pay RMD.
Iâll answer the simple question first. Congress will not pass a law to suspend RMD withdrawals in 2022.
The not so simple question is when to make your RMD withdrawal(s). My traditional IRA account is 87% individual stocks plus a couple of REITs, 10% bonds, and 3% cash. As a result, Iâve always had to sell securities to satisfy my RMD and QCD withdrawals.
My strategy regarding withdrawals from my IRA has been to withdraw my QCD first. Next I withdraw the remainder of my RMD and transfer it to my investment account where it is re-invested. The QCD and RMD withdrawals are done during the first week of the year to minimize the risk of selling any lots of securities at a price less than they were valued at on 31 December of the previous year.
Agreed, I need to dip into my taxable account for some of the estimated taxes too. If there is no cash, at least I can liquidate stocks with long term capitol gainsâŚ
Bill
I think that is extremely unlikely.
like having to sell every year to fund your RMDâŚ
as mentioned, the IRS has no requirement the RMD be in cash, only that a dollar figure is transferred out of the TIRA by the end of the year. In-kind transfers to meet the RMD are pretty common.
However, there are a couple of situations in which youâll need cash for your RMD. If you wish to pay the tax withholding out of the TIRA and you donât have sufficient cash for the custodian to send to the IRS, you will have to sell something, as I donât think the IRS would see the humor in transferring, in-kind, 20 shares of PM to them. Another RMD strategy requiring cash will be Qualified Charitable Distributions. Weâve done a boat-load of these this year, but had sufficient cash to cover them. Next year, proving none of my investments are involuntarily liquidated, will likely require me to sell some holdings to generate the cash to contribute to our charities.
BruceM
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âŚlike having to sell every year to fund your RMDâŚ
Iâm puzzled about the aversion to selling assets to withdraw RMD/QCD from a tax-deferred IRA. It seems strange to me to keep several $100K in cash earning .01% interest in my IRA just to avoid selling securities to satisfy my RMS/QCD withdrawals. The capital gains on the securities sold are enough to cover the withdrawals.
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MCCrockett
Iâm puzzled about the aversion to selling assets to withdraw RMD/QCD from a tax-deferred IRA. It seems strange to me to keep several $100K in cash earning .01% interest in my IRA just to avoid selling securities
$100K in cash is too much, but having a buffer amount to keep you from being forced to sell when covering RMD $'s.
i.e. If you know your RMD next year is going to be ~~$5,000 or so, have a little more than that lying idle. You wonât be pushed to getting that cash when your stocks are being stressed in the market.
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ââŚlike having to sell every year to fund your RMDâŚâ
Youâre probably going to have to sell every year.
Since your time horizon for selling is way short of the 10 year typical outlook for the stock market -
You probably DON"T want to be all in stocks in your IRA.
My IRA declined 1.5% since Jan 1. 3% cash, rest in REITS, bonds, stock funds. 50/50. REITS have gone up.
Since I have to take 4.4% or so this year, my dividends/interest cover about half of that. Just have to sell a few percent to fund it for the year.
Most folks in 70s only have to either have a few percent interest/dividends, or sell a few percent of their assets.
Yeah, being in âall stocksâ in a down market probably not fun!
t.
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BrerBear
$100K in cash is too much, but having a buffer amount to keep you from being forced to sell when covering RMD $'s.
i.e. If you know your RMD next year is going to be ~~$5,000 or so, have a little more than that lying idle. You wonât be pushed to getting that cash when your stocks are being stressed in the market.
I donât know exactly what next yearâs RMD until the end of December. If today were 31 December, my next yearâs RMD would be $130K even with the market behavior since the beginning of the year.
The only difference between selling securities in an âupâ year versus a âdownâ year is the reduction in your capital gains on your sales. The IRSâ Uniform Lifetime Table guarantees that you will need to sell securities in a âdownâ year at some point in your lifetime. Why worry about it?
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"I donât know exactly what next yearâs RMD until the end of December. If today were 31 December, my next yearâs RMD would be $130K even with the market behavior since the beginning of the year.
The only difference between selling securities in an âupâ year versus a âdownâ year is the reduction in your capital gains on your sales. The IRSâ Uniform Lifetime Table guarantees that you will need to sell securities in a âdownâ year at some point in your lifetime. Why worry about it?"
Well, youâre in a nice spot to be having to take $130K/yr out of your IRA. Either than, or are 90 years old and got millions in the IRA, too.
The problem is not selling âsecuritiesâ. It is having something other than STOCKS to sell each and every year.
Now, if you are in your 70s, dividends (typically 2.3% now on SP500 type funds) will provide up to half your annual needs. So you only have to sell maybe 1.5% of your holdings.
There is no capital gains on your IRA holdings. Itâs all âfull incomeâ.
Unless you take out securities and transfer them to a separate taxable account - and still paying any and all taxes on the value of the stocks at the time of transfer - most folks are simply going to âsellâ something to get the 130K after they have their dividends and interests.
Not much reason to go to that trouble. If stock XXX is at 88 dollars a share - and you transfer them to a taxable account, paying your full income tax on 88 dollars time number of sharesâŚyou could simply sell them in your IRAâŚtake the cashâŚand buy the stocks at 88/sh in your private account - IF you really want those stocks. When you go to sell them, the tax basis will be 88/sh anyway.
Being all in stocks could lead to a situation where the market is really up on Dec 31, and crashes big time 3 days later and stays down.
Think that happened to lots of dot.com type stocks. The capital gains rate was going from 20% to 15% the next tax year - so folks held off till Jan 2 and then dumped tons of stocksâŚaround year 2000? QCOM went from $800/sh to $250/sh in a week.
I sleep well at night. Dividends and interest piles up. I"m 50/50 in my IRA. If stocks are down, sell some REITS or corp bonds for the extra 2% I need a year.
t.
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OkâŚI think Iâm about to become public enemy #1 on this thread. Please, no one take this personallyâŚp-l-e-a-s-eâŚ
Read this line over and over and over and over and overâŚ
YOU ARE NOT REQUIRED TO SELL ANYTHING TO MEET YOUR RMD REQUIREMENT
For the life of me I cannot figure out why this is so difficult to understand.
If you have an asset allocation for your investments (taxable and tax deferred accounts) of, say,
40% Large cap value ETF (VONV)
20% short duration bond ETF (SLQD)
15% REIT ETF (VNQ)
10% International (VEA)
10% Small Cap Growth ((IWM)
5% Cash
If, say, your RMD has the dollar value of 20% of VNQ and IWM held in your TIRA, then transfer the appropriate number of shares of these two ETFs to your taxable account. Your RMD requirement has been met, your asset allocation has been maintained and this will have NOTHING TO DO and is totally separate from any household cash flow need you may or may not have from your retirement plan(s) that you generate when you rebalance your allocation. RMDs and cash generation have nothing to do with each otherâŚkeep them separate.
OkâŚlet the flaming beginâŚ
BruceM.
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On the contrary⌠thanks for this. I did not know this.
Also, for anyone else who did not know: a) this resets the cost basis to the value on the date of the transfer, and b) it also resets the âpurchase dateâ such that even if you held the position in your IRA for 20 years, once it arrives in your taxable account, itâs as if it was a new purchase. If you sell w/in a year, itâs a short-term gain (or loss.)
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RMDs and cash generation have nothing to do with each other.
OK, but you still must come up with the cash to pay income taxes on the value of the shares transferred. And often have to pay estimated taxes on it at end of the quarter.
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I kind of follow.
But regardless of the exact how/why path taken to fulfill RMD, you are required to âdepleteâ your tax deferred assets by the amount of the RMD. Unless Iâm still adrift in the fog.
(Always a possibility.)
(Mine are taken from a annuity cash account that is tied to market results. So far, so good.)
âBut regardless of the exact how/why path taken to fulfill RMD, you are required to âdepleteâ your tax deferred assets by the amount of the RMD. Unless Iâm still adrift in the fog.â
Yes, you can âtransferâ (if allowed by your IRA custodian), shares in your IRA to your taxable accounts.
However, you MUST pay income taxes (regular rate) on the value of the shares moved.
Letâs say you need to take $40,000 out of your million dollar IRA portfolio. (RMD 4%). You will pay regular income taxes on that $40,000. No matter what.
Whether you transfer âsharesâ or sell the shares in the IRA and transfer âcashâ to your checking account.
Makes no real difference if you sell the shares in your IRAâŚthen buy those shares in your taxable account IF you want to keep that. Of course, there is a âtransaction feeâ but it probably wonât be any more/less than the âtransfer feeâ of shares which your custodian might do by selling in one account and buying in the other.
The tax basis for your shares in your taxable account is now $40,000 when you go to sell it some time in the future no matter how they get there.
The only way to reduce âtaxesâ on your RMD is to donate to charity a part or all of your RMD during the year. Let us say you normally give charity X $10,000 a year. You can do that by donating directly from your IRA to that charity. Then, if you had a $40,000 RMD requirement, you get $30,00 moved to your checking or brokerage accountâŚand owe income taxes only on $30,000. (But you donât get to write off again a $10,000 charitable donation on your income taxes at year end)
t.
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