Help With RMDS

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Carolina Shagger
Posts: 28
Joined: Mon Aug 10, 2009 5:21 am

Help With RMDS

Post by Carolina Shagger »

Looking for some help on RMD’s. I have to take a RMD of about $80K this year. All of the assets are in BND. I historically take my RMD late in the year for two reasons: I first make any QCD I wish. Then I complete my RMD distribution. By December 1st I have a pretty good handle on what my income will be and have both federal and state taxes withheld from the RMD so I don’t have to worry about estimated taxes. With interest rates hovering near zero, it looks like interest rates have nowhere to go but up. I don’t think we will see negative interest rates. The average duration for BND is 6.7 years. As I understand it this means that if interest rates go up 1% I would expect to see the value of the fund to go down 6.7%. Naturally I hate to sell BND later if I think it will go down and am forced to sell in order to satisfy my RMD. Assuming interest rates go up ½% I will lose $2680 on the $80K I have to take. Keeping things simple: I understand the period is less than a year and I will actually have to sell more BND to satisfy the $80K withdrawal requirement. In the meantime that $80K will have spun off $896 of income, for a net loss of $1784. An alternative would be to sell $80K in BND now and put it in a money market fund paying a whopping 0.01%. This would give me something like an additional $8. Of course an additional alternative would be to invest in something that would be guaranteed to not decrease in value yet still spin off some income. Unfortunately this doesn’t exist. I know fretting about potentially losing $1784 may seem like a waste of my time; I submit it is very Bogle-like as some members of this forum are concerned with not getting Turbo Tax for free and chase credit card bonuses. In any case, your thoughts on the best course of action please.
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willthrill81
Posts: 23627
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Help With RMDS

Post by willthrill81 »

I believe that the Fed has made it pretty clear that they aren't raising the Fed funds rate anytime soon, not for at least another year. That doesn't mean that interest rates in the market may not rise a bit before that, but it seems unlikely for rate to rise in a meaningful quantity within the period fo time you're concerned about.

That said, you are clearly trying to reduce the risk of selling BND at anything other than an 'optimal' time, but you will not be able to do that on a consistent basis at all. It just cannot be done.

Fretting about a potential loss of under $2k on a portfolio that's probably around $2 million (based on the amount of your RMD) isn't a good use of your time, especially when there's virtually nothing that you can do about it unless you sell enough to cover your RMD this year and forego the tiny bit of interest you would otherwise get from it.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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GerryL
Posts: 3040
Joined: Fri Sep 20, 2013 11:40 pm

Re: Help With RMDS

Post by GerryL »

Early in the year I move the amount of my RMD to the cash account in my IRA. No worry about ups or downs.
Like you, I execute QCDs in the first part of the year and then do the rest of the RMD in Q4, and do all withholding at that time. Since I have 4 funds in my IRA, this simplifies things for me because I need only rebalance once a year.
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