No. of Recommendations: 3
You should be able to view the spreadsheet, or download it from this link:
https://www.dropbox.com/s/d4y862pc3g2im1m/RMD-when%20to%20ta...

(You do not have to have a dropbox account to view or download it. You can change the start year, the asset allocation (100/0 or 60/40), etc. The spreadsheet also shows the figures for a 20 year period as well as for 31 years.)

Here are the figures for a few selected 31 year periods, for an initial amount of $100,000, AA of 100/0:
Total RMD withdrawals, ending IRA value.
(BOY = Beginning of Year. EOY = End of Year)

***Take RMD 1st of Jan*** *** Take RMD last of Dec***
Start Total RMD End Value Total RMD End Value
1950 $362,335 $64,491 $383,743 $71,840
1970 $261,558 $113,500 $291,612 $143,659
1986 $381,168 $81,050 $407,674 $92,410


Ending in 2008, which had a loss of -38.5%
***Take RMD 1st of Jan*** *** Take RMD last of Dec***
1978 $508,450 $75,167 568,589 $78,300


Starting in 1974, which had a loss of -29.7%
***Take RMD 1st of Jan*** *** Take RMD last of Dec***
1974 $355,308 $98,322 $397,109 $115,636

In all these cases, taking the RMD at the end of year is better than taking it at the begining of the year. The total of the withdrawals is higher, and the final value is higher.


The spreadsheet also shows some other data; the number of years with a gain/loss and the average gain of the gain years and average loss of the loss years, etc.

The reason that EOY is better is that the average annual gain is 10%. If you take out the RMD at BOY, then the gain is on a lower amount. Of course, in a year with a loss it is better to take the RMD at BOY, since the loss will be on a lower amount. But there are many more years with a gain than a loss, and the average gain is larger than the average loss.


However, consider the case where the RMD is used for living expenses. If the RMD isn't taken until EOY, what provided the living expenses for the first year? We should look at the case where the first year's living expense is removed from the initial IRA. Assuming that this amount is equal to the first RMD ($3,650) then the figures are:

***Take RMD 1st of Jan*** *** Take RMD last of Dec***
Start Total RMD End Value Total RMD End Value
1978 $508,450 $75,167 $547,838 $75,442

Even in this case, with a lower initial IRA value, it is better to take the RMD at the end of the year.
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But you are looking only at the IRA value and presumably assuming you spend the distribution.

If you invest the distribution in a taxable account, then the same gain results in funds taxable at capital gains rates rather than as ordinary income.
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Rayvt:

Your spreadsheet was interesting but seems to have the same problematic assumptions made in all retirement researcher articles. RMD withdrawals are required by law. They are not required to be used solely for consumption. They can be used for entirely or partially for investment in a taxable investment account.

Although I know from other posts that you like to have taxes withheld from your RMD withdrawals, is the tax column really meaningful? The taxes that you have to pay on RMD withdrawals depend on how much taxable income that you have from other sources such as Social Security benefits and pensions plus dividends and interest that you received by reinvesting your RMD withdrawals.

The last table in your comment where you attempt to adjust for consumption that there is an insignificant difference in the IRA accounts at the end of 31 years. The flaw in this table is that you've included income for the 101st year of consumption for those that withdraw RMD at the end of the year.
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RMD withdrawals are required by law. They are not required to be used solely for consumption. They can be used for entirely or partially for investment in a taxable investment account.

Yes. But as others have pointed out, if you do an in-kind transfer out and stay invested, it does not matter when in the year you do it. The return on the same investment will be the same whether it's in a taxable account or an IRA. The only difference being the different taxation of future gains.

The premise behind the question of the best time in the year to take the RMD withdrawal is the implicit assumption that the RMD will be spent.

Although I know from other posts that you like to have taxes withheld from your RMD withdrawals, is the tax column really meaningful?

No. But some people will complain if there isn't a tax column there. For purposes of comparison of the alternatives, the tax doesn't matter. The same tax applies to each alternative, so it cancels out.


...you like to have taxes withheld from your RMD withdrawals

Actually, I don't. (Although accurately actually, I don't do quarterly tax payments or regular withholding, I just do one large IRA withdrawal late in the year and have 100% withheld, in the amount that will satisfy the IRS Withholding Safe Harbor rule).
Money is fungible, and when you withdraw $X from an IRA you owe $Y additional tax. Doesn't matter which account I write the IRS check on, or what other income streams will be pushed into a higher rate --- the tax is owed because of the IRA withdrawal.


The last table in your comment where you attempt to adjust for consumption that there is an insignificant difference in the IRA accounts at the end of 31 years. The flaw in this table is that you've included income for the 101st year of consumption for those that withdraw RMD at the end of the year.

Indeed. I went back and forth on this, and actually changed the way I handled it several times. Decided that whichever way I presented it, somebody would rationally be able to complain about it.

The _right_ way to handle it is to do a phantom initial withdrawal of the first year's consumption amount in the "RMD at EOY" case. That way, at each Jan 1 each case starts out with that year's consumption amount in cash.
The way to do that is to start out the initial amount of the EOY block to be reduced by the amount of the first RMD.

Doing that changes the _amount_ of the final value (and total draws), but not the conclusion. EOY still has better total withdrawals and better final value. For 31 year period. For 20 year period there is a slight difference.


My overall conclusion is that it doesn't much matter when you take the RMD.
At age 90, one has a $10,821 RMD and the other has $11,281 RMD. That difference is bordering on insignificant.

What all this shows is that the claim that taking RMD on Jan 1 is *clearly* best...is wrong. It also shows that the fear about taking the RMD on Dec 30 is way overblown. So t's fear is groundless. So he can take comfort in that.
Primarily it shows that, even though taking the RMD in late December is better, the benefit is small.

So...take the RMD whenever is most convenient to you. There is no strong reason to shy away from taking withdrawals every month or so throughout the year, when you happen to need the money.
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