Where to direct (invest) your RMD
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Where to direct (invest) your RMD
I am three years away from my first required RMD.
I realize there are variables that influence where I should place monies from the RMD. I am thinking about this at a high level right now and will drill down deeper in the coming months.
At this point, and for a few years after commencing RMDs, I do not anticipate needing the annual RMD monies (about $50K/year) to augment my yearly living expenses. I am not planning on any major purchases, nor do I have any existing mortgages or other debt.
One scenario I have thought of is, at least for the first few years, is to have my mutual fund company distribute the RMD monies directly to a taxable mutual fund account.
I am interested in knowing what others have considered, or are considering, in terms of where they direct their RMD. Again, I understand there are taxable and other considerations - and this inquiry is to identify potential places or types of accounts to direct my RMD.
Thanks for sharing your experience and insight with this.
I realize there are variables that influence where I should place monies from the RMD. I am thinking about this at a high level right now and will drill down deeper in the coming months.
At this point, and for a few years after commencing RMDs, I do not anticipate needing the annual RMD monies (about $50K/year) to augment my yearly living expenses. I am not planning on any major purchases, nor do I have any existing mortgages or other debt.
One scenario I have thought of is, at least for the first few years, is to have my mutual fund company distribute the RMD monies directly to a taxable mutual fund account.
I am interested in knowing what others have considered, or are considering, in terms of where they direct their RMD. Again, I understand there are taxable and other considerations - and this inquiry is to identify potential places or types of accounts to direct my RMD.
Thanks for sharing your experience and insight with this.
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Re: Where to direct (invest) your RMD
Here's what's worked for us:
1. How does the excess from your withdrawl fit within your asset allocation? The day the funds come out is a good time to rebalance. Fill up the asset class underweight. Then divide to keep your allocation at your chosen level.
2. Keep tax efficient assets--equities--invested in taxable accounts. I assume you use the Three Fund Portfolio. If you need to trade around to get asset allocation back in balance make sure to keep fixed assets (to the extent possible) in tax deferred accounts.
3. Spend some on yourself. At the very least, identify a task you really hate--then hire it done forever. We can rest assured our terminal portfolios will be spent by someone else.
Good luck. All the best
1. How does the excess from your withdrawl fit within your asset allocation? The day the funds come out is a good time to rebalance. Fill up the asset class underweight. Then divide to keep your allocation at your chosen level.
2. Keep tax efficient assets--equities--invested in taxable accounts. I assume you use the Three Fund Portfolio. If you need to trade around to get asset allocation back in balance make sure to keep fixed assets (to the extent possible) in tax deferred accounts.
3. Spend some on yourself. At the very least, identify a task you really hate--then hire it done forever. We can rest assured our terminal portfolios will be spent by someone else.
Good luck. All the best
Re: Where to direct (invest) your RMD
I plan on taking some of my requirement as a QCD and some will be invested in a taxable account in line with my AA. I can live on my SSA and pension. Maybe I'll buy a better house but no current plans.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley
Re: Where to direct (invest) your RMD
At least at Schwab, you can simply transfer the appropriate shares from your IRA to your taxable brokerage account "in kind" so that you don't need to sell any shares. If you are happy with your asset allocation and wish to take your RMD without altering your investments, that is the way to do it. Of course, if you don't sell any shares when you take your RMD, you still must pay the appropriate taxes so you would want to have sufficient cashflow in order to do that.
Re: Where to direct (invest) your RMD
This is what we do. In addition, I have enough withheld for taxes to meet the safe harbor provisions. So, I do not have to file quarterly estimates.
Re: Where to direct (invest) your RMD
We are in much the same position as the OP, so it’s interesting to hear what others are doing.
My RMD will come from the federal TSP, and transferring shares in kind won’t be an option.
Off the top of my head, I expect that we will transfer the funds to checking and then move them into a taxable brokerage account and reinvest. We probably will withhold any taxes due before transferring.
It means one more account to consider when we are distributing funds according to our desired allocation.
EDITED FOR CLARITY.
My RMD will come from the federal TSP, and transferring shares in kind won’t be an option.
Off the top of my head, I expect that we will transfer the funds to checking and then move them into a taxable brokerage account and reinvest. We probably will withhold any taxes due before transferring.
It means one more account to consider when we are distributing funds according to our desired allocation.
EDITED FOR CLARITY.
Last edited by delamer on Thu May 26, 2022 2:48 pm, edited 1 time in total.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Where to direct (invest) your RMD
You are transferring some money (assets) from your tax deferred account to your taxable account. So a consequence, assuming the money is not just spent, is to make whatever adjustment is appropriate to your asset allocation and to your asset location (bonds in tax deferred, stocks in taxable or whatever). Exactly what that is would be different in each case, for different people and different times for the same person.
Re: Where to direct (invest) your RMD
Same here. Early in the year: QCDs. Later in the year: one or two distributions with Safe Harbor withholding on the final distribution. Since my taxable account is all Vanguard Balanced Index, I take the distribution in cash and use most of it to buy more VBIAX soon after.
Re: Where to direct (invest) your RMD
I'm four years from starting RMDs from my TIAA 403(b). I don't expect to need to use them for my normal expenses, although things could very well change in the meantime. I plan to take them out of my CREF Stock accounts and leave my TIAA Traditional (stable value) accounts alone, if TIAA will let me do that. This will gradually reduce the stock allocation in the 403(b), thereby slowing future growth and reducing future RMDs. The RMDs will be re-invested in stock index funds in my taxable account, after withholding taxes of course.
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Re: Where to direct (invest) your RMD
If one has multiple tax-deferred accounts, are you required to draw RMDs evenly from all of them... or is it just the total amount per year that matters, and you can decide where that comes from?
Re: Where to direct (invest) your RMD
You can decide where it comes from, with the caveat that IRA RMDs have to come from an IRA not a 401(k). And vice versa.HeelaMonster wrote: ↑Thu May 26, 2022 2:57 pm If one has multiple tax-deferred accounts, are you required to draw RMDs evenly from all of them... or is it just the total amount per year that matters, and you can decide where that comes from?
So if you have two IRAs and one 401(k), you can withdraw from either or both IRAs to get the total IRA RMD due. But your 401(k) RMD has to come from the 401(k).
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Where to direct (invest) your RMD
If the RMDs are all from IRAs (traditional or rollover IRAs), then the minimum amount is calculated separately for each account; however, the RMD can be satisfied by withdrawing from a single account or from multiple accounts, in any proportion. Tax-deferred 401k's are treated separately.
I have taken RMDs for a few years now, averaging about $21K per year. Here's an example of how I have handled the withdrawals:
QCDs (10-20%): $3K; taxable portion of RMD: $18K
Tax withheld from the RMD toward current year's taxes (24% federal marginal rate, 9.3% CA): $6K
Tax withheld from the RMD toward safe harbor for current year's planned Roth conversion: $6K
Cash distributed to cover amount owed on previous year's taxes (amount in excess of safe harbor for previous year): $3K
Cash distributed for lumpy expenses (new computer, travel, or home improvement): $3K
If I were to exchange tax-deferred funds into taxable, then I would pay attention to tax-efficiency in choosing which fund to exchange into taxable.
I have taken RMDs for a few years now, averaging about $21K per year. Here's an example of how I have handled the withdrawals:
QCDs (10-20%): $3K; taxable portion of RMD: $18K
Tax withheld from the RMD toward current year's taxes (24% federal marginal rate, 9.3% CA): $6K
Tax withheld from the RMD toward safe harbor for current year's planned Roth conversion: $6K
Cash distributed to cover amount owed on previous year's taxes (amount in excess of safe harbor for previous year): $3K
Cash distributed for lumpy expenses (new computer, travel, or home improvement): $3K
If I were to exchange tax-deferred funds into taxable, then I would pay attention to tax-efficiency in choosing which fund to exchange into taxable.
Re: Where to direct (invest) your RMD
Not sure if HeelaMonster has a 403b but you can take an RMD from a single 403b account to satisfy the total RMD across multiple 403b accounts. I learned there are some exceptions to 403b RMDs, see viewtopic.php?p=6677638#p6677638.delamer wrote: ↑Thu May 26, 2022 3:07 pmYou can decide where it comes from, with the caveat that IRA RMDs have to come from an IRA not a 401(k). And vice versa.HeelaMonster wrote: ↑Thu May 26, 2022 2:57 pm If one has multiple tax-deferred accounts, are you required to draw RMDs evenly from all of them... or is it just the total amount per year that matters, and you can decide where that comes from?
So if you have two IRAs and one 401(k), you can withdraw from either or both IRAs to get the total IRA RMD due. But your 401(k) RMD has to come from the 401(k).
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Re: Where to direct (invest) your RMD
RetiredCSProf wrote: ↑Thu May 26, 2022 3:29 pm If the RMDs are all from IRAs (traditional or rollover IRAs), then the minimum amount is calculated separately for each account; however, the RMD can be satisfied by withdrawing from a single account or from multiple accounts, in any proportion. Tax-deferred 401k's are treated separately....
Thanks to all for the thorough replies. My tax-deferred accounts include federal TSP (401k kinda sorta) and rollover IRA (rolled from TSP to brokerage).sycamore wrote: ↑Thu May 26, 2022 3:54 pmNot sure if HeelaMonster has a 403b but you can take an RMD from a single 403b account to satisfy the total RMD across multiple 403b accounts. I learned there are some exceptions to 403b RMDs, see viewtopic.php?p=6677638#p6677638.delamer wrote: ↑Thu May 26, 2022 3:07 pmYou can decide where it comes from, with the caveat that IRA RMDs have to come from an IRA not a 401(k). And vice versa.HeelaMonster wrote: ↑Thu May 26, 2022 2:57 pm If one has multiple tax-deferred accounts, are you required to draw RMDs evenly from all of them... or is it just the total amount per year that matters, and you can decide where that comes from?
So if you have two IRAs and one 401(k), you can withdraw from either or both IRAs to get the total IRA RMD due. But your 401(k) RMD has to come from the 401(k).
Re: Where to direct (invest) your RMD
Right. My example assumed one 401(k), but if you have more than one you can the total 401(k) from one or all.sycamore wrote: ↑Thu May 26, 2022 3:54 pmNot sure if HeelaMonster has a 403b but you can take an RMD from a single 403b account to satisfy the total RMD across multiple 403b accounts. I learned there are some exceptions to 403b RMDs, see viewtopic.php?p=6677638#p6677638.delamer wrote: ↑Thu May 26, 2022 3:07 pmYou can decide where it comes from, with the caveat that IRA RMDs have to come from an IRA not a 401(k). And vice versa.HeelaMonster wrote: ↑Thu May 26, 2022 2:57 pm If one has multiple tax-deferred accounts, are you required to draw RMDs evenly from all of them... or is it just the total amount per year that matters, and you can decide where that comes from?
So if you have two IRAs and one 401(k), you can withdraw from either or both IRAs to get the total IRA RMD due. But your 401(k) RMD has to come from the 401(k).
The important point is the IRA RMDs don’t satisfy 401(k) RMDs, and vice versa.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Where to direct (invest) your RMD
Sport (or others),
Question about RMD withholding. (Next year for me)
I achieve a safe harbor now through pension and Social Security withholding.
When I begin RMDs can I select the exact amount of withholding to achieve a safe harbor or is one limited to a tax bracket percentage as with Social Security?
Thanks,
S
Re: Where to direct (invest) your RMD
This likely depends on the custodian of your account and what it allows.spencer99 wrote: ↑Thu May 26, 2022 6:32 pmSport (or others),
Question about RMD withholding. (Next year for me)
I achieve a safe harbor now through pension and Social Security withholding.
When I begin RMDs can I select the exact amount of withholding to achieve a safe harbor or is one limited to a tax bracket percentage as with Social Security?
Thanks,
S
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Where to direct (invest) your RMD
My 401k allows any arbitrary amount withheld for Federal and state taxes.
I usually take the RMD in December and withhold the total expected tax payment for the year at that time. Most years the RMD more than covers taxes due.
I usually take the RMD in December and withhold the total expected tax payment for the year at that time. Most years the RMD more than covers taxes due.
Re: Where to direct (invest) your RMD
I withdraw monthly to our checking for spending, plus I do QCD's. The RMD amount is higher that the sum of these withdrawals and QCD's. That excess is transferred to our taxable brokerage account. All transactions are done as cash.
Re: Where to direct (invest) your RMD
I would think the best place is a regular brokerage account holding ETFs to make up a 3-fund portfolio in whatever allocation suits you.
This would be the most tax efficient way so you could manage withdrawals in a way to minimize short term gains, do tax-loss harvesting, make changes to your allocation (including re-balancing), etc.
I guess someplace like Fidelity or Schwab would be best for this.
This would be the most tax efficient way so you could manage withdrawals in a way to minimize short term gains, do tax-loss harvesting, make changes to your allocation (including re-balancing), etc.
I guess someplace like Fidelity or Schwab would be best for this.
Re: Where to direct (invest) your RMD
THANKS Delamer and DBR.
My first year's RMD won't factor into the previous year's safe harbor so I'll get a chance to see how my various custodians handle this.
S
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Re: Where to direct (invest) your RMD
As I also do not currently need to spend any of the RMD amount, my RMD is taken from a bond fund and transfered to the same bond fund in my taxable account. That way my asset allocation remains unchanged.
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Re: Where to direct (invest) your RMD
Fidelity lets me select the exact percentage of withholding for the IRS and for the state, as long as the total withholding is less than 100%.spencer99 wrote: ↑Thu May 26, 2022 6:32 pm
Sport (or others),
Question about RMD withholding. (Next year for me)
I achieve a safe harbor now through pension and Social Security withholding.
When I begin RMDs can I select the exact amount of withholding to achieve a safe harbor or is one limited to a tax bracket percentage as with Social Security?
Thanks,
S
TRowe lets me select the exact percentage of withholding for the IRS but requires that state withholding be an exact proportion (10% in CA) of the IRS withholding; e.g., if I select 90% for IRS, then they withhold 9% for CA. (The %age withheld is state-dependent.) That is, this restriction applies if I take an RMD from TRowe online through their website. I can adjust the state withholding at TRowe if I take the RMD over the phone.
Re: Where to direct (invest) your RMD
Thanks Prof,
As Delamer said, this looks to be very custodian-specific.
Looks to be reasonably flexible, though, at least from the examples in this thread.
By the way, Capricorn212, on topic to your OP - similar to others' suggestions: At Vanguard I will transfer the RMD (after QCDs) from the qualified account to a taxable account. RMDs from two workplace qualified accounts will go to my checking account and then to my Vanguard taxable account. Everything going to taxable is equity with subsequent rebalancing to AA in qualified accounts.
S
As Delamer said, this looks to be very custodian-specific.
Looks to be reasonably flexible, though, at least from the examples in this thread.
By the way, Capricorn212, on topic to your OP - similar to others' suggestions: At Vanguard I will transfer the RMD (after QCDs) from the qualified account to a taxable account. RMDs from two workplace qualified accounts will go to my checking account and then to my Vanguard taxable account. Everything going to taxable is equity with subsequent rebalancing to AA in qualified accounts.
S
Re: Where to direct (invest) your RMD
Me too.
On Dec. 15th yearly, I use RMD withholding instead of paying quarterly taxes.
In 2021, I mis-calculated and underpaid my state taxes. I guess that I need to focus a little more...as possible.
Re: Where to direct (invest) your RMD
Transferring the RMD to my Taxable Vanguard account is exactly what I've been doing for many years now. It works great.
I set it up as a one-time transfer in early December of the following year. From a MM in my IRA account to the MM in my Taxable account. I then use the new funds in Taxable to make any adjustments needed for the desired
asset allocation.
I don't have any withholding taken, but rather make quarterly estimated tax payments. The total amount of the RMD doesn't vary much from year to year, and you will know the exact amount almost a year in advance, so estimating the taxes isn't an issue. For example, my Y/E 2021 IRA account balance, along with the 2022 RMD amount, was determined on 31 Dec last year and I won't receive it (as taxable income for 2022) until Dec of this year. Plenty of time for planning - both estimated 2022 taxes and changing asset allocations.
Congratulations on reaching the RMD milestone !
I set it up as a one-time transfer in early December of the following year. From a MM in my IRA account to the MM in my Taxable account. I then use the new funds in Taxable to make any adjustments needed for the desired
asset allocation.
I don't have any withholding taken, but rather make quarterly estimated tax payments. The total amount of the RMD doesn't vary much from year to year, and you will know the exact amount almost a year in advance, so estimating the taxes isn't an issue. For example, my Y/E 2021 IRA account balance, along with the 2022 RMD amount, was determined on 31 Dec last year and I won't receive it (as taxable income for 2022) until Dec of this year. Plenty of time for planning - both estimated 2022 taxes and changing asset allocations.
Congratulations on reaching the RMD milestone !
Re: Where to direct (invest) your RMD
My portfolio spending plan is my RMD % applied to my entire portfolio value plus spending dividends and interest, so my RMDs are retirement income to be spent. My tIRA has only bond funds, to slow its growth, with only stock funds in the RIRA after annual Roth conversions in those years of delayed SS.
The RMD portfolio spending plan was developed by Sun and Webb at Boston College's Center for Retirement Research.
The RMD portfolio spending plan was developed by Sun and Webb at Boston College's Center for Retirement Research.
Re: Where to direct (invest) your RMD
we take our rmd's monthly, pay a percentage automatically to the feds, and then put them directly in our taxable account at Vanguard. In the taxable, we use VTMFX (tax managed balanced fund) which is more or less 50/50 - tax exempt bonds and U.S. stocks. It's easy and then we don't think about it. I