Three Fund Portfolio & RMDs
Three Fund Portfolio & RMDs
Hello, first time user here.
Currently a Larimore 3-Funder. My question relates to RMDs from same. RMDs would be, by default, taken from across total account balance without discrimination or allocation selectivity (save for existing allocation bias percentages of such a portfolio). That said, if one wants to "sell high" from only the segment of the portfolio that "outperformed" in a given year and not from the "losers" allocation of that year, how does one achieve this selectivity with RMD distributions from a 3-fund folio? Does the assumed inherent yearly 'unbalance' of the total portfolio automatically account for this at time of RMD?
Thank you.
Currently a Larimore 3-Funder. My question relates to RMDs from same. RMDs would be, by default, taken from across total account balance without discrimination or allocation selectivity (save for existing allocation bias percentages of such a portfolio). That said, if one wants to "sell high" from only the segment of the portfolio that "outperformed" in a given year and not from the "losers" allocation of that year, how does one achieve this selectivity with RMD distributions from a 3-fund folio? Does the assumed inherent yearly 'unbalance' of the total portfolio automatically account for this at time of RMD?
Thank you.
Re: Three Fund Portfolio & RMDs
Welcome to the forum.
If this is an early RMD, it is a small percentage of the portfolio. How you do this will probably not matter much either way.
If you prefer to "sell high" (rebalance while taking the RMD), just sell what you have a little too much of for your RMD. For example, my target allocation is 50% stocks and 50% bonds. If my portfolio wanders to 53% stocks and 47% bonds, if I need to take money out, I sell stocks instead of bonds. This nudges it back toward target. I don't care it is hits the target or even goes past the target as long as it is relatively close to target. For me, "relatively close to target" is 5% either way.
My experience is that I rarely have to do anything to keep my US stock:international stock ratio in close enough balance. I can't remember the last time I had to adjust that.
Does that answer your question?
If this is an early RMD, it is a small percentage of the portfolio. How you do this will probably not matter much either way.
If you prefer to "sell high" (rebalance while taking the RMD), just sell what you have a little too much of for your RMD. For example, my target allocation is 50% stocks and 50% bonds. If my portfolio wanders to 53% stocks and 47% bonds, if I need to take money out, I sell stocks instead of bonds. This nudges it back toward target. I don't care it is hits the target or even goes past the target as long as it is relatively close to target. For me, "relatively close to target" is 5% either way.
My experience is that I rarely have to do anything to keep my US stock:international stock ratio in close enough balance. I can't remember the last time I had to adjust that.
Does that answer your question?
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Re: Three Fund Portfolio & RMDs
Welcome to the forum.
You don't say if your account is an IRA or 401k or similar. For an IRA, you can make your distributions manually and specify which fund(s) you want to sell. So, if your stock fund is above target, you can sell some of that. Conversely, if the stock fund is below target, you can sell some of your bond fund. If you give money to charity, Qualified Charitable Distributions (QCDs) are the best way to do that. Those are tax free distributions that can be part of your RMD.
You don't say if your account is an IRA or 401k or similar. For an IRA, you can make your distributions manually and specify which fund(s) you want to sell. So, if your stock fund is above target, you can sell some of that. Conversely, if the stock fund is below target, you can sell some of your bond fund. If you give money to charity, Qualified Charitable Distributions (QCDs) are the best way to do that. Those are tax free distributions that can be part of your RMD.
Re: Three Fund Portfolio & RMDs
Basically, sell from the fund that results in reaching, or nearly so, your target allocation for your total assets, not only those in retirement accounts.
Tim
Tim
Re: Three Fund Portfolio & RMDs
Good point. I suppose for a 401k, they might just send you a check and there may not be a way to "sell high".
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Re: Three Fund Portfolio & RMDs
Thanks all. It's an IRA. So as I guessed, sell "high" = sell that fund that exceeds desired allocation %, and don't fret the exactitude.
That said, can you expand upon "...For an IRA, you can make your distributions manually and specify which fund(s) you want to sell."
I'm not at RMD stage yet but thought you set your RMD $ amt and it was thereafter an auto-generated deduction without further discretion.
So there is a function (through Vanguard IRA) to allocate which funds I seek in a given year, on the already established and locked in RMD? And this selectivity can change annually but not the RMD (unless higher than Minimum set).
That said, can you expand upon "...For an IRA, you can make your distributions manually and specify which fund(s) you want to sell."
I'm not at RMD stage yet but thought you set your RMD $ amt and it was thereafter an auto-generated deduction without further discretion.
So there is a function (through Vanguard IRA) to allocate which funds I seek in a given year, on the already established and locked in RMD? And this selectivity can change annually but not the RMD (unless higher than Minimum set).
Re: Three Fund Portfolio & RMDs
Vanguard offers RMD service where they automatically send you the RMD on the schedule you choose. You can also set the service to calculate your RMD, but make no distributions. In this case, you just make distributions whenever you please from the funds you choose. You just want to make sure you take the required amount by the required date.
Re: Three Fund Portfolio & RMDs
Thanks all.
A final shade on this thread:
About rolling over into an IRA, Taylor L. in his book mentions to be careful on which TYPE of fund is selected.
Rolling direct into (IRA) MUTUAL FUNDs is no tax, but while rolling into (IRA) ETFs is not, changing back out to MUTUALs later does become a taxable event. Any why's and how's on this - he does not refine the statement.
A final shade on this thread:
About rolling over into an IRA, Taylor L. in his book mentions to be careful on which TYPE of fund is selected.
Rolling direct into (IRA) MUTUAL FUNDs is no tax, but while rolling into (IRA) ETFs is not, changing back out to MUTUALs later does become a taxable event. Any why's and how's on this - he does not refine the statement.
Re: Three Fund Portfolio & RMDs
For Vanguard mutual funds and ETFs in a taxable account, one can go from mutual fund --> ETF of the same fund with no tax. However, going from ETF --> to mutual fund would require outright selling of the ETF and buying of the mutual fund. The selling step could trigger capital gains tax.
That should not be the case in an IRA - where you can always switch back and forth from one investment to another with no tax.
That should not be the case in an IRA - where you can always switch back and forth from one investment to another with no tax.
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Re: Three Fund Portfolio & RMDs
Thank you.
Over and out.
Minuet
Over and out.
Minuet