Req Min Distri Questions

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CZjc1330
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Joined: Sat Feb 11, 2017 11:15 pm
Location: Palm Beach , FL

Req Min Distri Questions

Post by CZjc1330 »

I check this great resource three or four times a week. Always learn something useful. THANKS to all who selflessly contribute their time and knowledge.

Two Questions
!. My RMD is far more than I need. Probably 20 to 25 percent more than I need. I usually reinvest some and have a large savings acct at 0.40% I also have a $100,000 equity line of credit. Never tapped it. So, do I really need to have an emergency fund?

2. Retired in 2006 at 71, presently age 86. Over my working years, I usually had a 50% equities and 50% fixed income distribution. For a number of reasons, it is now 40% equities (Low cost, Total U.S. Market, some International, Vang & Fido) and 60% TIAA Guaranteed at 3%.

At times I feel I should return to a 50/50 distribution for potential future growth. But given point one above and my age should I just leave the present distribution?

Really reluctant to tap into the guaranteed 3%, but feel at times I am too heavy in fixed income. Thus wonder if I should reduce the TIAA chunk by taking my Vang and Fido RMD plus my TIAA RMD from the TIAA bond fund for two or three years to reach a 50/50 mix once again.

Will appreciate your suggestions. TKS!
lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: Req Min Distri Questions

Post by lakpr »

What is your current tax bracket? If it is 22% or less, I strongly suggest that you view the excess RMD as IRS tax payment and convert an equivalent amount to Roth. Tax brackets are poised to spring back to 2017 levels in 4 more years, so Roth conversions now is prudent.

Say you have $1000 left over after living expenses. Rather than reinvest $1000, send it to IRS. Convert $1000/22% = $4545 to Roth. Since growth in Roth is tax free, invest that $4545 in the Roth in 100% equities. Since your asset allocation is 40% equities to 60% bonds, move 60% / 40% * $4545 = $6060 from equities to bonds in your Traditional IRA.

No RMDs from Roth in the future, your equities allocation in the Traditional IRA is reduced so future RMDs are reduced too.

I am completely on board with not touching the guaranteed 3% TIAA Traditional. Draw your future RMDs exclusively from the bonds portion in the non Roth IRA. You will have set a floor for your fixed income (3%) thus, and would be the last asset you will tap for your annual expenses.
niagara_guy
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Re: Req Min Distri Questions

Post by niagara_guy »

A QCD (qualified charitible distribution) counts towards your RMD if done correctly (I am not sure of the details) and is done within a pre-tax IRA. You do not pay taxes on the QCD so there are advantages to using a QCD instead of normal giving.

As suggested above, you could also use the distribution dollars to pay the taxes on a Roth conversion.
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ruralavalon
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Re: Req Min Distri Questions

Post by ruralavalon »

Two Questions
!. My RMD is far more than I need. Probably 20 to 25 percent more than I need. I usually reinvest some and have a large savings acct at 0.40% I also have a $100,000 equity line of credit. Never tapped it. So, do I really need to have an emergency fund?
In my opinion an emergency fund is not needed. We are both 75, have no pension, and our asset allocation is 50/50 with no cash allocation or emergency fund. Our only cash is a few of months worth of living expenses net of Social Security in our joint checking account.

My Required Minimum Distributions (RMDs) are a little more than we need, I periodically invest the excess in our joint taxable account using Vanguard Total Stock Market Index Fund (VTSAX).

I suggest opening a taxable brokerage account at a low cost fund provider like Vanguard, Fidelity or Schwab and investing in a very tax-efficient stock index funds. Examples would include Vanguard Total Stock Market Index Fund (VTSAX) or Vanguard Total International Stock Index Fund (VTIAX).

I don't think is it's a good idea to count on the tax brackets "spring[ing] back" in 2025, there is no telling what Congress might do or not do in the next four years. We get a new Congress every two years, we don't know what will happen.


2. Retired in 2006 at 71, presently age 86. Over my working years, I usually had a 50% equities and 50% fixed income distribution. For a number of reasons, it is now 40% equities (Low cost, Total U.S. Market, some International, Vang & Fido) and 60% TIAA Guaranteed at 3%.
I would not give up any of that "TIAA Guaranteed at 3%".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Eagle33
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Re: Req Min Distri Questions

Post by Eagle33 »

Once your retirements accounts became available for penalty free distributions, the need for a separate emergency fund was no longer necessary. Typically a T+2 delay is typically acceptable considering credit card could be used in cases where one can't wait a couple of days and paid off when credit card bill comes due.
Topic Author
CZjc1330
Posts: 235
Joined: Sat Feb 11, 2017 11:15 pm
Location: Palm Beach , FL

Re: Req Min Distri Questions

Post by CZjc1330 »

TKS to all.
Yes I used QCD for charitable giving. Charity gets full amount; I pay with pre-tax funds. So that’s a plus.

I do have regular brokerage accounts with Fido and Vang beyond my IRA accounts. Have poured excess funds into no cost. Index funds.

I have already used up all my “Bond Funds” in Fido and Vang. IRAs. Everything that is left is in low cost index funds, total market etc.

Trying not to deplete the 3% Tiaa fund. But -- I don’t think I will have any other choice in a year or two. I don’t want to cut my equity percentage which is at 40% Would like to get back to 50/50.

As to Roth conversions. Would have to pay mucho taxes now for money we will never use. We have no heirs. When I die all goes to my wife and vice versa. When we are both gone all funds designated to charities. Really don’t think it pays to switch to Roth. Should have years ago when I was still working, maybe. I asked TIAA/Cref, Fido and Vang representatives several times. All argued against the ROTH conversion. But water over the dam. Given all factors as noted I don’t see advantage now.

Tax bracket is 24%.

Seems like we will live rich and die rich and pay high taxes till then. Yep, the penalty of being disciplined and investing 15% of gross income every month for over 55 years. Could be worse. Frankly -- a good “problem” to have. Goal was to be financially independent, seems like we achieved that.

Final question: to meet RMD should I just deduct from each account the amount required? That will bleed equities in Fido and Vang. And bleed the 3% TIAA account for the TIAA obligation?

TKS again!!
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tennisplyr
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Re: Req Min Distri Questions

Post by tennisplyr »

This Vanguard tool might be useful for general AA direction:

https://retirementplans.vanguard.com/VG ... -YYA4-CW3H
“Those who move forward with a happy spirit will find that things always work out.” -Retired 13 years 😀
Topic Author
CZjc1330
Posts: 235
Joined: Sat Feb 11, 2017 11:15 pm
Location: Palm Beach , FL

Re: Req Min Distri Questions

Post by CZjc1330 »

Thanks tennisplyer.
Took the Vang test. It suggested I establish a 50/50 split. Fine, I agree.
But how do I get there without depleting the 3% Tiaa pot.
I see no other path. As suggested, I have been pouring excess money into after-tax Fido & Vang brokerage accounts.
Aside from the ideas suggested above (and TKS) any other ideas? Am I just stuck? Doing all I can? TKS
lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: Req Min Distri Questions

Post by lakpr »

CZjc1330 wrote: Thu Jun 24, 2021 12:58 pm Thanks tennisplyer.
Took the Vang test. It suggested I establish a 50/50 split. Fine, I agree.
But how do I get there without depleting the 3% Tiaa pot.
I see no other path. As suggested, I have been pouring excess money into after-tax Fido & Vang brokerage accounts.
Aside from the ideas suggested above (and TKS) any other ideas? Am I just stuck? Doing all I can? TKS
Are you open to buying I bonds, up to $15k per year if you do some planning? I bonds are yielding 3.54%, so "depleting" TIAA pot gradually to I bonds that are yielding higher isn't a loss of opportunity.
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