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When do you take RMD from 401k/IRA.
January of the year
Decemeber of the year
Quarterly through the year
Monthly through the year
Variable

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I move enough money to fund my RMD about once a year...sell stock funds (which go up the most) and put in MMF). Don't have to fully fund it as I move dividends, interest from bonds, and 'dividends' from REITS in my IRA into the MMF as they occur during the year. So once a year, I'll move about 50% of what I need from investments into the MMF.....and go from there.

I like the monthly 'paycheck'. Some months I spend it all, some months it rolls over and every couple months, 're-invest' that in my taxable account.

I also like that even if the market goes down, I've got the year's worth of money set aside....

Only 20% of my assets are in the IRA.

Yeah, I probably 'lose' a bit but then again, I don't have to worry about a year end 25% market drop if one takes it out late in the year.....

t.
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If you don't need it and you don't want it, then take it as soon as possible if you are going to reinvest it or otherwise take it in-kind.

If you plan to spend it, then take it monthly via systematic withdrawals to reduce the volatility and risk of selling when down.

Oddly enough, I typically see those without a good plan tend to take it at the end of the year as a single lump sum and then spend it or otherwise just dump it in cash. Not the most efficient strategy. And, unless you are in an investment that you can't rebuy outside of your IRA (like a CD, or a fixed annuity), then I can think of a good reason to ever wait until December. Can anyone else?
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My approach is not really covered by the options. My goal is to avoid buying higher and selling lower.

So I create "cash" in January every year. I actually take funds out a highly variable times. In rising markets I do loose some appreciation. In falling markets, I do not suffer from market risk.
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then I can [not?] think of a good reason to ever wait until December. Can anyone else?

Telegraph's point about a large drop by year-end is valid, you may have to take out your RMD based on a much larger EOY value of the previous year.
But...most years the December value is larger than the previous December value.

I once did a backtest comparing Jan vs. Dec withdrawals. IIRC it was historically better to take RMD in Dec than Jan.
Ah-ha! Found it. I even uploaded it back then. https://www.dropbox.com/s/d4y862pc3g2im1m/RMD-when%20to%20ta...


Looking it over, the worst year for the S&P500 (in the 1975 to 2005 period) was -22%. 2nd worst was -12%. But for gains, there were: 28%, 22%, 37%, 32%, etc.
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I'm one of the "monthly" folks. Interesting: as I write this there are two votes for each of the choices given. I would not have expected that; it'll be interesting to see how the numbers unfold as more respond.

To some of the other comments, let me add my thoughts on how I manage the overall IRA that is the source of said RMDs. First, although I have a couple of checking accounts, and one taxable stock account, outside of the IRA, it's the IRA that is the vast majority of my net worth (real-estate aside). And it's the RMD that forms the bulk of my wife's and my ongoing living expenses. She's still working and earning a respectable salary, but is of that vaguely defined "retirement age" so working toward more full-retirement. My IRA holds no bonds or bond funds. It's all equities, except for the money market funds I refer to in the next paragraph.

I have followed for some years the practice of having sufficient money market funds in my (Fidelity) IRA to fund three to four years of RMDs. This enables me, generally, to do little or no selling of equity assets during market lows (unless they last longer than 3 to 4 years), reserving that activity until periods of market health. Obviously, since none of us can time the market, I'll do some moderate replenishing of that money market fund--from which the RMDs are taken--on an ongoing basis.

I should add that I've managed to get to a point where dividends alone are sufficient to cover a good 2/3 of the total annual RMD, plus I've enjoyed using Options to supplement that some. All of that, plus general market trends, have served such that my IRA has grown for all but two years since I retired; the RMD, for all but two years, has also grown. [Last year, of course, was one of those two years.]

mathetes
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It doesn't matter. You can take it in any variation you like. The sum total of the withdrawals just has to equal (or exceed) the calculated amount of your annual RMD.

My preference would be to take it towards the end of the year. May as well wait as long as possible to pay the taxes.

intercst
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I once did a backtest comparing Jan vs. Dec withdrawals. IIRC it was historically better to take RMD in Dec than Jan.

But only if simply looking at rates of return of January vs December, right? (can't view your dropbox) And, assuming what you sell in January earns nothing for the next 11 months.

Otherwise, why not take it in January and reinvest it? The performance remains the same and you benefit from better tax rates in most cases on the dividends and any future long term capital gains.
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My preference would be to take it towards the end of the year. May as well wait as long as possible to pay the taxes.

What if you have a larger 401k and you're concerned about RMD growing very large as time marches on. Would you consider taking it out sooner to slow 401k growth (in hopes of shrinking later RMD) to invest in stocks that retain earnings? Why not pay capital gains rates instead of ordinary income rates?

Consensus says delaying until later is best but I wonder if that just compounds a looming tax problem.
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My preference would be to take it towards the end of the year. May as well wait as long as possible to pay the taxes.

Then you are not doing it as efficiently as you could. You are not required to pay the taxes when you take the RMD. Depending on the size of your RMD, you could pay the taxes for it as late and the deadline the following year.
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Hawkwin writes,

Otherwise, why not take it in January and reinvest it? The performance remains the same and you benefit from better tax rates in most cases on the dividends and any future long term capital gains.

</snip>


If the argument is that you want to get the dividends and capital gains cut as soon as possible, that would seem to make doing Roth rollovers in the pre-RMD years a preferred strategy.

intercst
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If the argument is that you want to get the dividends and capital gains cut as soon as possible, that would seem to make doing Roth rollovers in the pre-RMD years a preferred strategy.

Assume that has been done to certain marginal rates too.
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bankersfate asks,

What if you have a larger 401k and you're concerned about RMD growing very large as time marches on.

</snip>


That's actually my problem. I'm only 63 so I have a few years to go before I start RMDs.

1) When my IRA exploded in value with investments in DELL and Pfizer in the late 1990's, I started a 72(t) SEPP program to begin paring down the size of my IRA and kept my taxable account intact.

2) From age 59-1/2 to age 65 I'm concentrating on minimizing income and maximizing my Obamacare tax credits. My annual 2019 health insurance premium is now less than $20/yr. Years ago when I did my retirement planning, I was forecasting $20,000/yr annual premiums by age 60. Thank you, President Obama. (Though Trump's innumeracy on health insurance helped a lot, too.)

3) From 65 to 70, I'll do Roth rollovers to top off whatever tax bracket makes sense.

intercst
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that would seem to make doing Roth rollovers in the pre-RMD years a preferred strategy.

Yes, but depending on retirement age, that window for doing such during lower income years might be only a handful of years.

While the Median retirement age for recent retirees is 63, the most common retirement age is 65; and age 70 for those that consider themselves healthy.

In general, it is fair to assume that retirement age and assets worthy of Roth conversions is positively correlated - at least between the ages of 62 and 70. Data on median net worth by age groups supports that hypothesis.
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I voted for December although that is not correct. I typically take it late in the year usually October or November. My reasons are to take advantage of the years tax deferral and to give me time to make any desired QCDs. I also have my estimated taxes for the following year withheld from the RMD and want the period of the free loan to the governments to be as small as possible. I typically do not have an immediate need for the money for expenses so have the RMD sent to a money market account then decide how I want to redeploy the money into taxable accounts.
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January because, as I have posted before, so my kid doesn't have to deal with it the year that I die.
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"Otherwise, why not take it in January and reinvest it? The performance remains the same and you benefit from better tax rates in most cases on the dividends and any future long term capital gains."

If you wind up paying quarterly taxes to the IRS, they really expect that you will pay taxes on the RMD in the quarter you take it out.

If you're RMD is 4% or 5% of your portfolio, and you have other investments, spinning off quarterly income, and SS, and maybe a small pension (or big one), you'll wind up paying quarterly taxes.

I keep enough in the MMF fund so that I can take out monthly payments and I have the appropriate tax taken out with each monthly 'withdrawal'. Once a year I have to replenish it. But 2/3rds the money for my withdrawals comes from dividends, interest, REIT income within my IRA, and that gets paid monthly/quarterly. I have them moved into the MMF as they come, rather than re-invest them in the fund they are in.

My custodian figures out the RMD amount Jan 2 and makes the appropriate adjustment.

So far it's been working for 3 years and we'll see how it goes. About once a year I have to sell 'something' to replenish it a bit..... some funds...... maybe 1.5% of total value. Rest of RMD comes from dividends/interest.

Yeah, I could roll over those dividends and interest into the same funds....then at the end of the year sell more of to get to the RMD amount...but don't. I'm not sure Dec is always going to be the best month of the year.



t
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Thanks you for asking a question that I have been wondering. We still have a couple more years before hitting 70.5, but it will be good to have thought it out in advance.
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Yeah. Good stuff. Now if I could only figure out what MMF stands for.
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Now if I could only figure out what MMF stands for.

Money Market Fund

AJ
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Otherwise, why not take it in January and reinvest it? The performance remains the same and you benefit from better tax rates in most cases on the dividends and any future long term capital gains.

If you are going to reinvest the RMD, then it doesn't matter when you take it. The same investment has the same return regardless of which account you hold it in.

The presumption of the question assumes you are going to spend the RMD. Which, I think, most people will. Otherwise you'd just an in-kind withdrawal.
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I've been taking my RMD's for about 15 years now. I've been retired for over 15 years.

I transfer the RMD's to my taxable account usually the first or second week in January. My IRA continues to rise in value and the RMD's continue to rise each year. I take the distributions (either in cash or securities) and transfer it to my taxable account in an effort to keep the RMD's low. Since I don't need the money, I let it produce tax deferred income in my taxable account. The taxable account produces more income than I need so much of the income gets reinvested. I usually don't trade or sell so I expect the bulk of the funds will go untaxed and be stepped up in value to my heirs upon my passing. I have no other income than my portfolio, so I continually remove funds for all expenses-all FED and STATE Taxes -Gifts and contributions.

And even more important I am currently and have been since I retired on July 1 2003, 100% DEBT FREE.

b&w
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I transfer the RMD's to my taxable account usually the first or second week in January. My IRA continues to rise in value and the RMD's continue to rise each year. I take the distributions (either in cash or securities) and transfer it to my taxable account in an effort to keep the RMD's low. Since I don't need the money, I let it produce tax deferred income in my taxable account. The taxable account produces more income than I need so much of the income gets reinvested. I usually don't trade or sell so I expect the bulk of the funds will go untaxed and be stepped up in value to my heirs upon my passing.

That's what I'm thinking too. Appreciate everyone commenting.

In the above scenario -- I actually think it could be better to take out 401k funds when the market is DOWN. If you have to take $x dollars in RMD why not get more shares out at lower prices, reinvest them quick and have gains taxed at capital gains rates instead of at higher marginal rates?

Selling lower is not good if you need to spend the RMD to live, of course.
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In the above scenario -- I actually think it could be better to take out 401k funds when the market is DOWN. If you have to take $x dollars in RMD why not get more shares out at lower prices, reinvest them quick and have gains taxed at capital gains rates instead of at higher marginal rates?

----You are kidding with that statement?--Aren't you? Please tell me ---How do you know when the market is DOWN? To be able to get more shares sold at lower prices? Consistently?

I've made a living from investing in the market since July 1 2003 AND I DON'T KNOW WHAT TOMORROW WILL BRING----And TRUST ME--YOU DON'T EITHER--And neither does anyone else reading this post.--The best you can do IS GUESS.

I have given you a rule that I use---Sometimes it works--and sometimes it doesn't. That's the best I can do

b&w
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Of course I know how to time the market. :)

I agree with your rule because most times selling in January will be better than selling in December. And most years that is going to be the best you can do because the market tends to be in a zone of reasonableness.

But late in 2009 one might have considered taking more than their RMD out of their 401k, as an example. Even you and I probably knew that we might have been transferring money at a good time when the SP500 was at $668, no? But, I get your point.


I was somewhat addressing someone up thread that stated, "My approach is not really covered by the options. My goal is to avoid buying higher and selling lower." If you are moving particular shares inkind you might chose the companies that you might think are undervalued instead of those that are overvalued.

But, I will reiterate, I get your point and agree with you -- most times selling earlier is going to be better.
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But late in 2009 one might have considered taking more than their RMD out of their 401k, as an example. Even you and I probably knew that we might have been transferring money at a good time when the SP500 was at $668, no? But, I get your point.

PLEASE--Don't assume anything I do. I rarely trade stocks-I haven't SOLD one share in about a year. I remain, most of the time fully invested--I currently only have 9 securities in all my portfolios. I avoid trading to avoid making mistakes The portfolios are geared towards tax deferred income---Because income IMHO is more stable than capital gains. A stock's price can change every trade, while the income can stay the same most of the time and increase a lot faster that it can go down. I don't see any connection between the S&P 500 and any stock sale I may desire to make.. My decision is to take the RMD's out of the IRA in early January(The law says I have to take them out in the calendar year, and since I don't like to make market timing decisions- I just do it- AND IT'S Done) and I don't have to think about it anymore. Then, since I rarely trade--I can go back to doing nothing but waiting for more tax deferred dividends to come into my portfolios- For example One stock was due to drip shares into 4 accounts today-AND THEY DID-Good-
1) Tomorrow another stock goes X-Div and will drip shares in 3 accounts on the 29th and paycash in another account
2) On March 22 another stock will drip shares into One Account
3) On March 25 another stock will drip shares into 3 accounts and pay cash into 3 other accounts
4)On March 29 Another stock will drip shares into 2 accounts and Pay cash into 2 other accounts
5) On April 2 Another stock will go X-Div and pay me cash in 3 accounts and drip shares in 2 more

So I have a lot of things to do without having the RMD's to think about.

Since I can't do anything about it--So I just do it and forget about it.

b&w
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I make my annual RMD withdrawal on the first trading day of the year to minimize the variance with the account balances on which the RMD is based. The RMD is transferred to my taxable investment account with no Federal or state taxes withheld. The RMD is invested in assets that produce no taxable income or nominal taxable income.

If needed, the income from the investments in my taxable investment account are used make the quarterly Federal and state estimated tax payments. So far I haven't found it necessary to do this as income from Social Security and two small pensions provides enough income to cover normal living expenses plus taxes on 85% of my Social Security benefits, pensions, and RMD withdrawals.
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If you plan to reinvest the funds, its a wash. Taking distributions at market lows has the advantage that taxable shares are purchased at better prices. (But you are also selling at those prices.)

Regular distributions (quarterly in my case) gives potential for dollar cost averaging.
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If you are going to reinvest the RMD, then it doesn't matter when you take it.

Incorrect.

If you have an investment that pays qualified dividends, then you would turn those qualified dividends into taxable income by leaving them in the IRA.

If you have a mutual fund that has LTCG, then you turn those LTCG into taxable income.

The after tax return is important - and can easily be 10% or more in a taxable account vs tax deferred.
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