No this is a good point Bruce. No flames needed. Have a rec.
T. Itās called a Qualified Charitable Distribution. But there are some rules that must be followed
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the IRA owner must have attained at least age age 70.5
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Max contribution is $100k per year
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If the IRA owner has an RMD, the QCD will come first from the RMD
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The QCD check from the IRA must be payable to the charity, not the IRA owner, although the check made payable to the charity may be sent to the IRA owner to then forward to the charity.
Most retirees take the standard deduction today. Because the QCD is not included in income, the QCD is the tax equivalent of making a deductible charitable contribution.
I attained age 70.5 this year. We saved up all our regular charitable donations and then made them through the QCD. Worked great!
BruceM
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āMost retirees take the standard deduction today. Because the QCD is not included in income, the QCD is the tax equivalent of making a deductible charitable contribution.ā
If you do a QCD from your IRA, you can benefit a lot more than a āsimple charitable donationā.
As you noted, most retirees take the standard deduction - unless they live in high tax states like MD or NY where real estate taxes are over $10Kā¦and you run into the SALT limitation of only 10,000 deduction for state, local and sales taxes. Even then, you might come up with a total of $15,000ā¦or not. So making say a $5,000 or $10,000 donation from regular income might get you over.
For those with low taxes, a $5,000 or $10,000 donation wonāt even reach the $15,000 standard deduction (good to 2026 and then? drop to what? )
Soā¦ if you take your QCD from your IRA, it comes off the top. No income tax on it.
IRA RMDS are taxed at full income rate.
If you have a lot of dividend income, itās taxed at only 15% (or less).
But RMDs ate likely going to be taxed at highest marginal rates you pay. IF you move into the 20% bracketā¦well, thatās what you pay.
Soā¦unless you are WAY over your %15,000 in standard deductions, you benefit from doing the QCD from the IRA RMD rather from taxable account income.
Iād rather pay taxes on dividends and cap gains ratesā¦and some regular incomeā¦
I havenāt exceeded the āstandard deductionā in years and years since they raised it. Giving money from taxable accounts would be half wasted since part of it is just reaching the $15,000 deductionā¦
Unless you already exceed your standard deduction limitsā¦(without the charitable donation) it makes no sense NOT to do your charitable donations from your IRA RMD. You come out ahead tax wise.
t
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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
Yes, as well as other cash flow needs as I outlined above.
With professional financial planning, cash flow (or liquidity) requirements are combined for the time period being planned (usually the calendar year), so that a single portfolio rebalance will meet them, usually along with a safety % at the margin. Tax due on any event, to include tax on RMDs, is one of the household cash flow needs. Trying to do this piecemeal can get quite convoluted and tough to follow.
BruceM
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Last year we had a relatively low tax rate, so I got frisky and took an extra 70K out of an IRA. Figured to take adavantage of the situation. (The RMD goes up every year, remember?) That was enough to bump us up a notch or two. So this year we are in a higher bracket than I wanted.
Poop. Some years you canāt win for losing.
CNC
Last year we had a relatively low tax rate, so I got frisky and took an extra 70K out of an IRA. Figured to take adavantage of the situation. (The RMD goes up every year, remember?) That was enough to bump us up a notch or two. So this year we are in a higher bracket than I wanted.
Poop. Some years you canāt win for losing.
CNC
This self inflicted wound could be pretty easily avoided with a few simple calculations to determine the tax impact of the proposed withdrawal amount. Especially near year end when any variability in income becomes less of a factor.
Last year we had a relatively low tax rate, so I got frisky and took an extra 70K out of an IRA. Figured to take adavantage of the situation. (The RMD goes up every year, remember?) That was enough to bump us up a notch or two. So this year we are in a higher bracket than I wanted.
Poop. Some years you canāt win for losing.
As BHM pointed out, the higher bracket was likely avoidable. When considering realizing more income, I run the two sets of numbers via this website, which admittedly has limitations as well like not taking IRMAA or NIIT into consideration, but gives me a quick heads up of what my taxes should look like. I track income on a spreadsheet all year long, and realize the extra income the last days of the year. Not late enough last year, when we got hit with a huge capital gains distribution from one of our mutual funds on 12/31, while I did our Roth Conversion on 12/30, but there was buffer in my calcs treating all dividends as ordinary income, so it didnāt wind up hurting us tax wise.
https://engaging-data.com/tax-brackets/
Whoever first linked this website to TMF, THANK YOU. It has become our go to tool.
IP
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Not late enough last year, when we got hit with a huge capital gains distribution from one of our mutual funds on 12/31
I just submitted an article for a retiree newspaper circulated in Vancouver, WA on this topic.
Unrealized gains that became realized gains, it seems, is a problem for several popular managed (as opposed to index) mutual funds in 2021. In a taxable account, this can become an unpleasant surprise, particularly for those who just recently bought shares of the fund realizing these gains. Searching through Morningstarās fund screener, I found popular funds like American funds Portfolio Growth (GWPFX) at 38% and Vanguard Prime Cap (VPMCX) at 63% Potential Capital Gains Exposures. This creates a real tax risk for those buying into these funds at this high level of unrealized gains.
Iāve long ago discontinued holding managed mutual funds and hold either ETFs or primarily, individual shares of company stock. This gives me better control over distribution projections thus the ability to project tax liability and withholdings. Iāve constructed an Excel SS that breaks income down into ordinary income, Qualified Dividends + LTCG and non-taxed income, and from this, the ability to project Fed tax pretty closely. This has historically allowed me to tailor Roth conversion amounts while staying in the tax bracket. But this is my first RMD year, so looks like Roth converting is over. Its a tax pain-in-the-butt when your TIRA has done so well over the years.
BruceM
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"This self inflicted wound could be pretty easily avoided with a few simple calculations to determine the tax impact of the proposed withdrawal amount. Especially near year end when any variability in income becomes less of a factor. "
Ah, but that requires patience - cuz of late in year distributions from funds.
Howie52
We are considering pulling funds out of an IRA to restore an emergency fund somewhat depleted by
a couple āemergenciesā which hit us last year. But we still have to see what happens through the
summer, fall and onward from there.
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"This self inflicted wound could be pretty easily avoided with a few simple calculations to determine the tax impact of the proposed withdrawal amount. Especially near year end when any variability in income becomes less of a factor. "
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Ah, but that requires patience - cuz of late in year distributions from funds. - Howie
True but there is some ability to make an good estimate based on prior years. When I am calculating my Roth Conversion amount, one element is estimating this years MF distributions to be 1.5x of last year. Also my overall taxable income target allows another $1,000 of headroom in whatever bracket I am aiming to stay within (currently the 24%). That pretty much ensures I wonāt get into the 32% bracket. But if an exceptionally high cap gain distribution does occur there wonāt be too many dollars pushed into higher bracket. Better than being paralyzed by lack of perfect information.
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Turning 73 soon, this is the first year I need to take an RMD.
Iām one of those apparently very rare people who are retired and their IRAs are effectively 100% in stocks, mostly individual stocks (some ETFs, but they are small by comparison, most stocks are MF recommendations, as are 7 of my top 10 gainers, and 7 of my top 10 losers). I understand the risks, and my cash flow needs and Iām comfortable with my situation. A repeat of the 1929 crash and multi-decade recovery would hurt, but I believe the market is much safer now than it was then. I believe I can handle a repeat of any of the post-WWII incidents without much concern, including if necessary brief interruptions to my pension and Social Security. (I do have FDIC insured savings to cover 3 monthsā expenses.)
I retired 2 years ago, with the expectation that Iād need to begin withdrawing funds from my retirement accounts about 9 months later. 2 years later I have not yet had to take any money out of the retirement accounts ā Iāve been able to live off my small pension, larger Social Security payments, and day-to-day savings. Unless I hit a large expense that I do not yet have covered by day-to-day savings, itās very likely I will not need to take out anything out of my IRAs other than my RMDs. (I am drawing down the savings, but much more slowly than I originally expected.)
Note that I use no withholding. I monitor my income month by month, and am comfortable paying estimated taxes quarterly. I expect to continue doing so. My plan as I take my RMDs is to put the needed taxes into high interest FDIC savings, and pay those estimated taxes quarterly as needed.
That said, Iāve read lots of advice about taking RMDs, the tax consequences, whether to move into cash or taxable brokerage accounts, etc. (Putting RMDs into my Roth accounts is not an option, since I have no earned income.) All the advice I find seems to assume an annual withdrawal or move.
Iād like to see some discussion about the benefits of taking the RMD annually vs throughout the year.
Taking the RMD annually seems to be akin to trying to time the market. I think the market will go up from here into the end of the year, so I should take my RMD late in the year. If Iām wrong and the market goes down, then I get less bang for my buck.
If I take my RMD monthly, or even weekly, thatās a lot more work (deciding which stocks to sell if into cash, or which stocks to transfer into taxable brokerage), but it lessens the market timing risk/benefit.
Have there been any studies or research about whether a monthly or weekly RMD withdrawal is better or worse than an annual one?
I know how much I need to take, and by when. Iām having trouble trying to decide whether I should take it all at one time, take 2% of that total weekly, or something inbetween.
Any recommendations and/or experience along these lines?
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Hi @rmenschel,
Whatever works best for you is what you should do. Monthly, quarterly, weekly, bi-weekly, annual, every 13 days, etc, etc.
Understand that I do not have extensive RMD experience. I made 13 annual Roth conversions and in 2022, I took my first and last RMD.
But, taking an RMD, timing wise, is just like investing. The direction is opposite but the timing part is identical.
When doing conversions, I always had the thought that the market would rise in the future. Using that idea, I always did my conversions in January. Out of 13, I was wrong 3 times. Call it 1/4 of the time.
If you are not using the RMD for living expenses, just transferring stock to a taxable account, I might be inclines to do it in January.
I would target non-dividend payers first. Dividends create taxable events. Not a big problem but it is āfriction.ā
If you do it once each year, it is done with. More distributions through the year just means more things to track and do. More opportunities to make a mistake or forget something.
Does that help you?
Gene
All holdings and some statistics on my Fool profile page
https://discussion.fool.com/u/gdett2/activity (Click Expand)
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I made 13 annual Roth conversions and in 2022, I took my first and last RMD.
I would have liked to do that, but I was on the edge of āwill I have enough to retire on?ā and chose to keep my money growing uninterrupted in the IRAs rather than reduce them with taxes.
If you are not using the RMD for living expenses, just transferring stock to a taxable account, I might be inclines to do it in January.
Iād say better later in the year. Letās assume $25k for example, 8% annual growth, and 24% tax bracket. If I leave the stock in IRA until end of year, the IRA grows by $2k, I move $25k of stock out, and pay $6k in taxes with my EoY estimated tax payment. If I do this at the beginning of the year, I move $25k of stock out, pay $6k in taxes with that first quarterās estimated tax payment, and have only $19k of stock left to grow for the remainder of the year. Iād āloseā $360 growth in the later schedule.
I would target non-dividend payers first. Dividends create taxable events. Not a big problem but it is āfriction.ā
Thatās a consideration I had missed. Itās small, earning only $9k dividends last year, but still worth thinking about.
[other comments not quoted] Does that help you?
Well, it lets me know Iām not alone in my thinking about this. But Iām hoping someone would have something more specific than āMore distributions through the year just means more things to track and do.ā That much I was able to figure out myself. 
Iām hoping for something that will let me figure out whether the financial impact would justify the more things to track and do.
Thanks for the feedback.
Bob
Hi @rmenschel,
It would be nearly impossible to answer this. Why?
Because the answer will be dependent entirely on the actual performance of every security that you hold, your exact choices for each sale and disposition of the proceeds.
You can do a look-back and decide what would have been the best choices for a specific period in the past. The limitation of that is it has no actual truth for the future. Being unwritten, the future has an unnerving ability to twist off of the track you think is going to happen.
Does that help you?
Gene
All holdings and some statistics on my Fool profile page
https://discussion.fool.com/u/gdett2/activity (Click Expand)
How large does my Retirement account need to be that I would start worrying about the RMD and taxes?
the jump from the 22% to 24% isnāt that much, considering that it is taxed progressively, not on the entire amountā¦
Thanks for any thoughts,
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Hi Darrell,
Not sure what you mean? I do not think āsizeā had anything to do with RMD distributions. The govāt says what % you need to take out every year. And that amount is taxed.
HTH
Hello,
Experts say that your account should be converted to a Roth IRA to avoid future mandatory withdrawals.
Based on your tax bracket, this could impact how much taxes you would need to pay.
It isnāt really the size of your account as much as it is the impact those withdrawals have on your total income.
No expert worth reading would make such a blanket recommendation. Often conversion can be even more punitive as it pertains to taxable income than simply waiting until RMDs. Ever person/couples situation is different and will have various inputs on that decision such as:
- Pensions
- SS
- Tax advantaged income like LTCG and QDivs
- Insurance needs
- IRMAA
Hey, you might want to remove that personal info.
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If you have a million dollar TIRA one day your RMDs will reach $100K if you live long enough (88 yo). That can impact many budgets. But it all depends on your numbers.