Required Minimum Distribution

[bob47]

2022 required minimum distributions for IRAs got locked in at the end of 2021 when markets were high. It's not hard to imagine markets will still be lower at the end of 2022. Are there any suggested strategies in this situation to prepare for the distribution? Maybe in kind distributions from the IRA to the brokerage account is the best strategy?

[retiredguy123]

2022 required minimum distributions for IRAs got locked in at the end of 2021 when markets were high. It's not hard to imagine markets will still be lower at the end of 2022. Are there any suggested strategies in this situation to prepare for the distribution? Maybe in kind distributions from the IRA to the brokerage account is the best strategy?
You can always withdraw the RMD and use the money to purchase the same or similar investments in a non-retirement account. But, you will still need to pay income tax on the RMD amount that you withdrew. One way to avoid the income tax on the RMD would be to do a direct transfer to a charity.

[Altavia]

Other side - Unlikely taxes will be any lower than today.

[davem4616]

the following year your RMD will be lower due to the market decline...so maybe between the two years your RMD's will even out if the tax bracket stays the same for you

you're going to have to take the RMD...what you do with the money once Uncle Sam get's his cut is up to you

the comment about the charity might be a way to dodge the tax...but I'd check with your tax advisor to make sure that applies even if you do or don't itemize...the tax rules seem to change from year to year...

[Boomer]

You are asking a question that I bet a lot of people are going to have at the end of the year. You have just thought of it sooner.

If the market is down in December, and if you do not have enough cash inside IRAs to protect stocks from having to be sold to pay the RMD, that would not be ideal, of course.

I would ask an accountant about whether an “in kind” transfer would be a way to pay the RMD based on the amount of the face value of the stocks transferring. (If you can do in-kind.) But later if you want to sell the in-kind shares, I have a feeling they come in dragging their cost basis with them, thus invoking a cap gain tax. Possibly a biggun. You should find out about that.

Dividend investors can let some of that income accumulate in cash inside the IRA and then use it for the RMD when the time comes, so they don’t have to sell stocks to pay taxes. That cash is like a moat around the stocks to protect them from having to be sold or transferred out to a taxable account.

(If you are charitably inclined anyway, look into using a QCD for part of the RMD. The advantage of the QCD is that it is not added into the AGI. But it would not help you keep your stocks. It would just save some income tax.)

Sounds like you are in “Be Prepared” mode. What you are talking about here (in May) will probably sneak up on some people in December.

Get professional advice and good luck with finding the most effective thing to do. (And maybe think about building that moat of cash inside an IRA. Even though the ROI on cash is absurd, your stocks would be protected.)

You probably already know that if you have more than one traditional IRA, the total RMD from all of them can be paid out of just one of the accounts. (Check me on that one, too. But, so far, I am not writing these posts from tax jail.) :)

Boomer

[LuvtheVillages]

the comment about the charity might be a way to dodge the tax...but I'd check with your tax advisor to make sure that applies even if you do or don't itemize...the tax rules seem to change from year to year...


It does not matter whether you itemize or not. When you donate a Qualified Charitable Distribution, it counts toward your RMD, and does not count as income to you.

Be sure that the funds go directly from your retirement account to the charity. You must not receive the funds. Simply call your charity and let them know that the funds are on the way. If you donate regularly, (perhaps to your church or temple) you can satisfy your annual tithe this way.

[villagetinker]

Interesting discussion, if you can take a loss against an RMD, I will need to discuss with financial advisor and tax expert. I do not have a clue.

[Babubhat]

A planning device often not used for maximum efficiency

[retiredguy123]

You are asking a question that I bet a lot of people are going to have at the end of the year. You have just thought of it sooner.

If the market is down in December, and if you do not have enough cash inside IRAs to protect stocks from having to be sold to pay the RMD, that would not be ideal, of course.

I would ask an accountant about whether an “in kind” transfer would be a way to pay the RMD based on the amount of the face value of the stocks transferring. (If you can do in-kind.) But later if you want to sell the in-kind shares, I have a feeling they come in dragging their cost basis with them, thus invoking a cap gain tax. Possibly a biggun. You should find out about that.

Dividend investors can let some of that income accumulate in cash inside the IRA and then use it for the RMD when the time comes, so they don’t have to sell stocks to pay taxes. That cash is like a moat around the stocks to protect them from having to be sold or transferred out to a taxable account.

(If you are charitably inclined anyway, look into using a QCD for part of the RMD. The advantage of the QCD is that it is not added into the AGI. But it would not help you keep your stocks. It would just save some income tax.)

Sounds like you are in “Be Prepared” mode. What you are talking about here (in May) will probably sneak up on some people in December.

Get professional advice and good luck with finding the most effective thing to do. (And maybe think about building that moat of cash inside an IRA. Even though the ROI on cash is absurd, your stocks would be protected.)

You probably already know that if you have more than one traditional IRA, the total RMD from all of them can be paid out of just one of the accounts. (Check me on that one, too. But, so far, I am not writing these posts from tax jail.) :)

Boomer
All earnings from an IRA are taxed as ordinary income. So, it doesn't matter whether you have capital gains or not. Capital gains inside an IRA do not count as capital gains. I was just suggesting that, if you want to keep the same type of stocks, you can replicate them by buying the same stocks with the RMD money. But, any stocks you purchase outside of the IRA, will have a new tax basis, even if they are the same stocks you had inside the IRA. There is no tax benefit by buying "in kind" stocks with the RMD money. The RMD money will be immediately taxed as ordinary income regardless, and you cannot defer it.

[villagetinker]

Retiredguy123, good point, I was not really thinking about that, Oh well..........

[Stu from NYC]

All earnings from an IRA are taxed as ordinary income. So, it doesn't matter whether you have capital gains or not. Capital gains inside an IRA do not count as capital gains. I was just suggesting that, if you want to keep the same type of stocks, you can replicate them by buying the same stocks with the RMD money. But, any stocks you purchase outside of the IRA, will have a new tax basis, even if they are the same stocks you had inside the IRA. There is no tax benefit by buying "in kind" stocks with the RMD money. The RMD money will be immediately taxed as ordinary income regardless, and you cannot defer it.

Very true we signed up to pay taxes on the money invested in the IRA or 401 from the getgo.

[CoachKandSportsguy]

Your RMD is calculated, you can take it out at any time, you can change the date to tomorrow if you want.Taking it out when the market is higher is a better strategy, because as the account falls in size, then you are taking out a larger percentage of the total value. (I mentioned this point in a prior post as it would suck for many people if the market fell 50% before you took your RMD based on the highest value at the end of last year.)

The second question is after you pay your taxes, investing the remaining RMD back into productive investments will help continue to grow your taxable assets, which have a different tax basis with long term gains and tax free dividends, up to a limit. With a large account and significant RMD, pay your taxes, you were successful, and try to avoid drawing down any taxable account assets, and you will have a nice rainy day or travel fund to draw on if necessary. Or, gift the money away now to family members who can use the extra money more than you can at this point.

We don't know your whole financial portfolio and lifestyle needs. I manage my parent's estates and trusts, and I took the RMD and invested into continue to grow their estate for now private pay dementia facility, which my mom likes and is very close to us. She has
20 years of private pay facility costs in her taxable estate, which I have not touched as the IRAs are paying for it with large medical expense deductions for zero taxes paid on the IRA income. She is 95 so I doubt she will use it all. .

good luck

[bowlingal]

you can take your RMD and just put it into another bank account. you don't have to spend it

[billthecpa]

Someone posted that ....."All earnings from an IRA are taxed as ordinary income."
This is not true. Earnings accumulate TAX FREE in an IRA.....and it is DISTRIBUTIONS from the IRA to the owner that are taxable.

[retiredguy123]

Someone posted that ....."All earnings from an IRA are taxed as ordinary income."
This is not true. Earnings accumulate TAX FREE in an IRA.....and it is DISTRIBUTIONS from the IRA to the owner that are taxable.
Correct, but the thread is about RMDs, which are distributions.

[bob47]

I've been using the concept of the protective "cash moat" but this year the moat is too small. Some decisions will have to be made. I appreciate the discussion.

[BlackHarley]

Or....when Uncle Sam comes looking for your RMD $$, use the phrase from the well respected\comedian financial guru Steve Martin and simply say..."I forgot"....lol.

[Villages Kahuna]

Whatever you do, make sure you take the RMD prescribed by the IRS. If you choose not to take the withdrawal and debate the issue with the IRS, it will be VERY expensive. The penalty tax rate for failing to take the RMD and paying tax on the withdrawal is a 50% tax as I recall.

Withdraw the RMD and debate with the IRS later. If you’re right, you’ll get a refund.

[Haggar]

It does not matter whether you itemize or not. When you donate a Qualified Charitable Distribution, it counts toward your RMD, and does not count as income to you.

Be sure that the funds go directly from your retirement account to the charity. You must not receive the funds. Simply call your charity and let them know that the funds are on the way. If you donate regularly, (perhaps to your church or temple) you can satisfy your annual tithe this way.

It does matter! Doing a Qualified Charitable Donation (QCD) lowers your taxable RMD.
This reduces your adjusted gross income. A lower AGI may reduce the % of Social Security taxed, may affect your medicare premium or if you can deduct medical expenses (if you itemize) will increase that deduction since medical expenses are reduced by 7.5% of AGI.
Second if you do not itemize your charitable contributions do not reduce your taxable income since they are lost.

In kind distributions from IRA are distributed at the then market value of the stock. The receiving account resets the tax basis to the value of the stocks when distributed.

Lastly - yes - you can take an RMD based upon the value of your accounts at the end of the previous year from one account.

[Altavia]

Appreciate the discussion, very helpful for my understanding.

Would it make sense to spread the distribution over the year to "average" market fluctuations?

[dewilson58]

Appreciate the discussion, very helpful for my understanding.

Would it make sense to spread the distribution over the year to "average" market fluctuations?

How much is your RMD?? 4%?? Spreading 4% over 12 months to average the market. What the real impact of this process??

If the market changes 10%: take 4% of 10% and divide by 2 (gross weighted average impact).

:posting:

[Skip]

Be careful with that RMD table. When you look at the age column, it's NOT your current age! It's the age at the END OF THIS YEAR (12/31/22). Many people end up UNDER-DISTRIBUTED and get hit with a penalty when they use the wrong line. The directions are not that clear when you look for your age on that chart.

Skip

[Smalley]

the following year your RMD will be lower due to the market decline...so maybe between the two years your RMD's will even out if the tax bracket stays the same for you

you're going to have to take the RMD...what you do with the money once Uncle Sam get's his cut is up to you

the comment about the charity might be a way to dodge the tax...but I'd check with your tax advisor to make sure that applies even if you do or don't itemize...the tax rules seem to change from year to year...

The Qualified Charitable Contribution is available to you no matter if you itemize or don't. The money leaves your tax-deferred account pre-tax.

[Babubhat]

If the distribution is material people are not getting to the right result. Anyone can form a 501c3 with little effort and government oversight. The wealthy love this combination. Please don’t debate the merits. 501c is an enormous legal “loophole”. Use it to your benefit if you like

[dyoder66@aol.com]

Make sure you are using the most current required percentage for your RMD

[rustyp]

Or....when Uncle Sam comes looking for your RMD $$, use the phrase from the well respected\comedian financial guru Steve Martin and simply say..."I forgot"....lol.

Oh you really don't want to do that. You will still owe the RMD and believe it or not a 50% penalty as a fine.

[retiredguy123]

Consolidate all of your IRAs and/or other retirement accounts with a good custodian, like Vanguard, and they will calculate your RMDs for you.

[mkjelenbaas]

2022 required minimum distributions for IRAs got locked in at the end of 2021 when markets were high. It's not hard to imagine markets will still be lower at the end of 2022. Are there any suggested strategies in this situation to prepare for the distribution? Maybe in kind distributions from the IRA to the brokerage account is the best strategy?
Put your head in the sand!!

[nsantelli]

I take RMD out quarterly, roughly 25% at a time. Also do charity giving using QCDs quarterly. I use QCDs for 90% of my charitable giving. In those years when we take standard deductions, using QCDs saves on our taxes. Consult your tax advisor on why that works. If he or she can’t tell you, get a new advisor.

[Topspinmo]

Why wouldn’t lost be tax deductible? There going collect taxes on withdrawals?

[retiredguy123]

Why wouldn’t lost be tax deductible? There going collect taxes on withdrawals?
Actually, they are. For example, if your total pretax deposits total $100K, and your account drops in value to $80K by the time you retire, you would only owe tax on the $80K that you withdraw.

[Boomer]

You are asking a question that I bet a lot of people are going to have at the end of the year. You have just thought of it sooner.

If the market is down in December, and if you do not have enough cash inside IRAs to protect stocks from having to be sold to pay the RMD, that would not be ideal, of course.

I would ask an accountant about whether an “in kind” transfer would be a way to pay the RMD based on the amount of the face value of the stocks transferring. (If you can do in-kind.) But later if you want to sell the in-kind shares, I have a feeling they come in dragging their cost basis with them, thus invoking a cap gain tax. Possibly a biggun. You should find out about that.

Dividend investors can let some of that income accumulate in cash inside the IRA and then use it for the RMD when the time comes, so they don’t have to sell stocks to pay taxes. That cash is like a moat around the stocks to protect them from having to be sold or transferred out to a taxable account.

(If you are charitably inclined anyway, look into using a QCD for part of the RMD. The advantage of the QCD is that it is not added into the AGI. But it would not help you keep your stocks. It would just save some income tax.)

Sounds like you are in “Be Prepared” mode. What you are talking about here (in May) will probably sneak up on some people in December.

Get professional advice and good luck with finding the most effective thing to do. (And maybe think about building that moat of cash inside an IRA. Even though the ROI on cash is absurd, your stocks would be protected.)

You probably already know that if you have more than one traditional IRA, the total RMD from all of them can be paid out of just one of the accounts. (Check me on that one, too. But, so far, I am not writing these posts from tax jail.) :)

Boomer

All earnings from an IRA are taxed as ordinary income. So, it doesn't matter whether you have capital gains or not. Capital gains inside an IRA do not count as capital gains. I was just suggesting that, if you want to keep the same type of stocks, you can replicate them by buying the same stocks with the RMD money. But, any stocks you purchase outside of the IRA, will have a new tax basis, even if they are the same stocks you had inside the IRA. There is no tax benefit by buying "in kind" stocks with the RMD money. The RMD money will be immediately taxed as ordinary income regardless, and you cannot defer it.

I've been using the concept of the protective "cash moat" but this year the moat is too small. Some decisions will have to be made. I appreciate the discussion.


retired guy 123,

I already knew all that stuff about ordinary income tax on the distribution and about the joy of cap gains inside an IRA. That's what makes capturing a gain inside an IRA much sweeter.

But I must be looking at the OP's question in a different way than you are........

I took it from the angle of there being a long held, highly appreciated, dividend-belching behemoth inside the IRA -- a stock that has been a dependable source of income -- possibly for decades. Those who own stocks like this often hold them forever and would miss them if they were gone. Having to sell inside the IRA and rebuying after would not offer any consolation because the buyback probably would mean a lot fewer shares.

Is an in-kind transfer to a regular account possible? I do not know. All I know for sure is the distribution has to come out of the IRA and the cash for the ordinary income tax has to come from somewhere.

Back to what I said about cost basis -- if such an in-kind transfer is possible -- in that case, surely that in-kind transferred stock would come in lugging its cost basis. I cannot imagine the IRS allowing a do-over on that one. If the holder plans on probably never selling the stock, then it should never make any difference. (The tax law -- for a very long time -- has allowed a new cost basis on inherited stock, but that's the only do-over on cost basis, as far as I know. It's been in the crosshairs, off and on, but so far it's survived.)

If it is found that there is such a thing as an in-kind transfer, as long as there is outside cash on the side to pay the RMD, then the decision as to "when" becomes a factor. If the holder thinks the share price is going to take a big hit but wants to continue to hold -- probably due to having been through ups and downs before and still trusting the stock -- then to do the transfer at what "feels" like the high would mean relinquishing fewer shares to the taxable account.

OP, your question brought back memories of my favorite accountant. He is no longer with us, but I remember he would call this kind of thing, "trying to break your money out of its prison."

Boomer

[retiredguy123]

retired guy 123,

I already knew all that stuff about ordinary income tax on the distribution and about the joy of cap gains inside an IRA. That's what makes capturing a gain inside an IRA much sweeter.

But I must be looking at the OP's question in a different way than you are........

I took it from the angle of there being a long held, highly appreciated, dividend-belching behemoth inside the IRA -- a stock that has been a dependable source of income -- possibly for decades. Those who own stocks like this often hold them forever and would miss them if they were gone. Having to sell inside the IRA and rebuying after would not offer any consolation because the buyback probably would mean a lot fewer shares.

Is an in-kind transfer to a regular account possible? I do not know. All I know for sure is the distribution has to come out of the IRA and the cash for the ordinary income tax has to come from somewhere.

Back to what I said about cost basis -- if such an in-kind transfer is possible -- in that case, surely that in-kind transferred stock would come in lugging its cost basis. I cannot imagine the IRS allowing a do-over on that one. If the holder plans on probably never selling the stock, then it should never make any difference. (The tax law -- for a very long time -- has allowed a new cost basis on inherited stock, but that's the only do-over on cost basis, as far as I know. It's been in the crosshairs, off and on, but so far it's survived.)

If it is found that there is such a thing as an in-kind transfer, as long as there is outside cash on the side to pay the RMD, then the decision as to "when" becomes a factor. If the holder thinks the share price is going to take a big hit but wants to continue to hold -- probably due to having been through ups and downs before and still trusting the stock -- then to do the transfer at what "feels" like the high would mean relinquishing fewer shares to the taxable account.

OP, your question brought back memories of my favorite accountant. He is no longer with us, but I remember he would call this kind of thing, "trying to break your money out of its prison."

Boomer
I am not 100 percent certain, but, if we are talking about a traditional IRA, where all of the contributions were made with pretax money, I don't think the cost basis has any significance or benefit at all. The IRA cost basis is zero, regardless of what you invested it in. The RMD comes out, it is all taxed as ordinary income, and you must start over by buying new stock or other investments with a new cost basis. There is no in-kind transfer allowed because you never had a cost basis.

If you have a Roth, or you have a traditional IRA that was fully or partially funded with after tax money, it can get complicated.

[Boomer]

It's been fun talkin' witcha about this, rg123. This thread has made me "curiouser and curiouser" -- like Alice said in Wonderland.

I think maybe we have been talking about apples and oranges mostly, but that's OK, it sent me on a search -- which I should have done in the first place -- but that's OK, too. Where's the fun in that. Can't let the internet do all our thinking for us. :) (Btw, the link I am providing is to a legitimate source. I vet the internet.)

I like learning about this stuff, and I always let it be known that I was not in the money business.

I just found an article that lays it all out. It clearly says that an in-kind transfer resets the basis. I am pleasantly surprised. I might be seeing possibilities in a reset basis -- only after talking to a tax professional, of course. And I would never have even thought about it had it not been for these TOTV screen-side chats.

Read on.

Here it is:

How to Take In-Kind Distributions from Your Tradition... - Ticker Tape (https://tickertape.tdameritrade.com/retirement/in-kind-ira-distributions-stock-rmds-17385)

Boomer

[retiredguy123]

It's been fun talkin' witcha about this, rg123. This thread has made me "curiouser and curiouser" -- like Alice said in Wonderland.

I think maybe we have been talking about apples and oranges mostly, but that's OK, it sent me on a search -- which I should have done in the first place -- but that's OK, too. Where's the fun in that. Can't let the internet do all our thinking for us. :) (Btw, the link I am providing is to a legitimate source. I vet the internet.)

I like learning about this stuff, and I always let it be known that I was not in the money business.

I just found an article that lays it all out. It clearly says that an in-kind transfer resets the basis. I am pleasantly surprised. I might be seeing possibilities in a reset basis -- only after talking to a tax professional, of course. And I would never have even thought about it had it not been for these TOTV screen-side chats.

Read on.

Here it is:

How to Take In-Kind Distributions from Your Tradition... - Ticker Tape (https://tickertape.tdameritrade.com/retirement/in-kind-ira-distributions-stock-rmds-17385)

Boomer
I think the key point in your link this:

“You still have to pay taxes when you use an in-kind IRA distribution,” said Luber. “The IRS wants the money. That’s the point of RMDs in the first place.”

I'll need to think about it, but why not just repurchase the same stock and start a new basis?

[Stu from NYC]

This is why I am happy to pay for the services of our CPA.

[Boomer]

I think the key point in your link this:

“You still have to pay taxes when you use an in-kind IRA distribution,” said Luber. “The IRS wants the money. That’s the point of RMDs in the first place.”

I'll need to think about it, but why not just repurchase the same stock and start a new basis?

I have more to think about, too. I might not be seeing what I think I am seeing. But now I think I’ll go watch Bosch with Mr. B. Bosch is back. Before we watched it, I thought it was about a dishwasher — a very quiet dishwasher. :)

Boomer

[Boomer]

This is why I am happy to pay for the services of our CPA.

Now, Stu, please do not lecture me. I have said repeatedly around here that I never do anything taxing (chuckle) without our CPA.

“I know a little bit about a lot of things, but not a whole lot about anything,” said Boomer, in a self-effacing manner. (I really do say that in my real life. :) )

Boomer

[Stu from NYC]

Now, Stu, please do not lecture me. I have said repeatedly around here that I never do anything taxing (chuckle) without our CPA.

“I know a little bit about a lot of things, but not a whole lot about anything,” said Boomer, in a self-effacing manner. (I really do say that in my real life. :) )

Boomer

I am pretty well versed in financial matters but taxes make my head spin and give me a headache. It is sad that our govt wrote a tax code that the vast majority has no clue how to navigate.

[petsetc]

Having read this thread and the link about in-kind transfers, I am at a loss to see the difference between doing and in-kind transfer out of an RMD, which is fully taxable at market value or selling and immediately repurchasing in a taxable account except for a possible price change during the few days involved. The only possible other reason, which seems not to be addressed is that ownership date may or may not reset in an in-kind transaction.

[TNGary]

I am at a loss to see the difference between doing and in-kind transfer out of an RMD, which is fully taxable at market value or selling and immediately repurchasing in a taxable account except for a possible price change during the few days involved. The only possible other reason, which seems not to be addressed is that ownership date may or may not reset in an in-kind transaction.

Yes your correct I believe, regarding price change difference, which could be significant as we have seen with all of the market fluxuations, such as you sold at $140 a share and have to repurchase @ $145 a share, not to mention taxes you must pay.

Also thank the poster for the link regarding in kind transfer. A lot of great talent on these posts!!

[Boomer]

Yes your correct I believe, regarding price change difference, which could be significant as we have seen with all of the market fluxuations, such as you sold at $140 a share and have to repurchase @ $145 a share, not to mention taxes you must pay.

Also thank the poster for the link regarding in kind transfer. A lot of great talent on these posts!!

You’re welcome. I don’t know why I didn’t look for a valid source sooner, but sometimes it’s good to work things through.

I have not been in the position to have to sell stock to pay taxes, but this in-kind transfer thing is really good to know about in case we decide to put ourselves in that position.

The other thing to watch for with the RMD is IRMAA (Income Related Monthly Adjusted Amount). Medicare premiums for B and D are based on a sliding scale, based on AGI, and IRMAA can sneak up on you if you don’t know it’s there.

A good year in the market resulting in a big RMD can throw you into bigger Medicare premiums that show up two years later. The QCD can help if the taxpayer is charitably inclined. It would be really frustrating to cross over the line by just a little and get hit with a bigger premium. (Surprise!) IRMAA is something to be aware of and can take some tax-planning.

And please don’t get me started on conversion to Roth after the RMD is paid.

We knew we would have to pay the piper someday, but it really can feel like “trying to break your money out of its prison,” like my accountant said. There can be so many moving parts to the plan and it has to go just right.

Boomer

[retiredguy123]

You’re welcome. I don’t know why I didn’t look for a valid source sooner, but sometimes it’s good to work things through.

I have not been in the position to have to sell stock to pay taxes, but this in-kind transfer thing is really good to know about in case we decide to put ourselves in that position.

The other thing to watch for with the RMD is IRMAA (Income Related Monthly Adjusted Amount). Medicare premiums for B and D are based on a sliding scale, based on AGI, and IRMAA can sneak up on you if you don’t know it’s there.

A good year in the market resulting in a big RMD can throw you into bigger Medicare premiums that show up two years later. The QCD can help if the taxpayer is charitably inclined. It would be really frustrating to cross over the line by just a little and get hit with a bigger premium. (Surprise!) IRMAA is something to be aware of and can take some tax-planning.

And please don’t get me started on conversion to Roth after the RMD is paid.

We knew we would have to pay the piper someday, but it really can feel like “trying to break your money out of its prison,” like my accountant said. There can be so many moving parts to the plan and it has to go just right.

Boomer
So, you can do an in-kind transfer from your IRA to a taxable account to satisfy your RMD requirement. But, you still pay the same taxes and you get no tax or income deferral benefit. Unless you are very old, your RMD is typically a very small percentage of your total IRA balance, most likely less than 10 percent, and you have a year to decide when and how to take the RMD. It can even be taken in small amounts during the year. I can't understand doing the in-kind transfer unless your IRA is invested totally in a few individual stocks with little or no diversification, and you are in love with those particular stocks. I would rebalance the IRA assets and create some diversification with other stocks, bonds, and cash, so that I could better manage the RMD and time it to benefit me. My opinion.

[Babubhat]

New IRS interpretation will screw your heirs. Annual distribution for them is required. They likely will pay more tax if working than the benefit you received.

The new IRS 10-year RMD rule isn't what we thought it was (https://www.investmentnews.com/the-new-irs-10-year-rmd-rule-isnt-what-we-thought-it-was-218987)

Confusion about 2022 required minimum distributions - InvestmentNews (https://www.investmentnews.com/confusion-about-2022-required-minimum-distributions-217220)

Early planning on qualified charitable distributions can mean bigger tax savings - InvestmentNews (https://www.investmentnews.com/early-planning-qualified-charitable-distributions-bigger-tax-savings-215769)

[retiredguy123]

New IRS interpretation will screw your heirs. Annual distribution for them is required. They likely will pay more tax if working than the benefit you received.

The new IRS 10-year RMD rule isn't what we thought it was (https://www.investmentnews.com/the-new-irs-10-year-rmd-rule-isnt-what-we-thought-it-was-218987)

Confusion about 2022 required minimum distributions - InvestmentNews (https://www.investmentnews.com/confusion-about-2022-required-minimum-distributions-217220)

Early planning on qualified charitable distributions can mean bigger tax savings - InvestmentNews (https://www.investmentnews.com/early-planning-qualified-charitable-distributions-bigger-tax-savings-215769)
Inherited IRA rules are a pain in the neck. For some people, the best thing to do is to systematically convert your traditional IRA to a Roth and save your heirs a lot of hassle. Do the math and watch out for IRMA.

[TSO/ISPF]

Inherited IRA rules are a pain in the neck. For some people, the best thing to do is to systematically convert your traditional IRA to a Roth and save your heirs a lot of hassle. Do the math and watch out for IRMA.

For the sake of those readers in their younger stages of retirement, the advice from some financial planners is to do Roth conversions prior to RMD. Watch your tax bracket and convert as much as possible prior to that first RMD year. Who knows, the laws could change and it may not matter how well you plan. Sorry if this has already been mentioned.

[Babubhat]

Ed Slott is the dean of retirement plan analysis. Read his site.

Ed Slott and Company, LLC | (https://www.irahelp.com/)

https://twitter.com/theslottreport

[Boomer]

For the sake of those readers in their younger stages of retirement, the advice from some financial planners is to do Roth conversions prior to RMD. Watch your tax bracket and convert as much as possible prior to that first RMD year. Who knows, the laws could change and it may not matter how well you plan. Sorry if this has already been mentioned.


That is excellent advice. I was doing exactly that. I wish I had done more. Time got away from me.

Anybody in this boat should take note.

Boomer

[Bay Kid]

For the sake of those readers in their younger stages of retirement, the advice from some financial planners is to do Roth conversions prior to RMD. Watch your tax bracket and convert as much as possible prior to that first RMD year. Who knows, the laws could change and it may not matter how well you plan. Sorry if this has already been mentioned.

If they could they would change the laws to take as much as possible of our retirement.

[Stu from NYC]

That is excellent advice. I was doing exactly that. I wish I had done more. Time got away from me.

Anybody in this boat should take note.

Boomer

If you do convert to a Roth you lose the opportunity to grow your money after conversion (the portion you have previously paid in taxes). That 25% paid in taxes could be working and growing for you for many years.

As a result it is not clear to me that a roth conversion is such a good idea.

[dewilson58]

If you do convert to a Roth you lose the opportunity to grow your money after conversion (the portion you have previously paid in taxes). That 25% paid in taxes could be working and growing for you for many years. As a result it is not clear to me that a roth conversion is such a good idea.

You are correct.

Conversions are not right for everyone.
Conversions are not always a good idea.
Conversions can cost you $$$

Conversions are possible hedges, possible.

[TNGary]

Ed Slott is the dean of retirement plan analysis. Read his site.

Ed Slott and Company, LLC | (https://www.irahelp.com/)

https://twitter.com/theslottreport

Thanks Babuhat, interesting site, also as an fyi discusses:
"Securing a Strong Retirement Act of 2022,"
A bill designed to increase savings in IRAs and company plans has passed the House of Representatives, but it’s not yet law. Link Below if interested,

House Passes SECURE 2.0 Bill, But It’s Not Law Yet | Ed Slott and Company, LLC (https://www.irahelp.com/slottreport/house-passes-secure-20-bill-it%E2%80%99s-not-law-yet)

[Babubhat]

Forming a 501c3 is the nuclear bomb of eliminating tax on the RMD. Perfectly legal. Wealthy all do it. Minimal effort and cost if your tax liability would be material. You can do good and save taxes, including sales tax

Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.

Learned Hand

[DAVES]

2022 required minimum distributions for IRAs got locked in at the end of 2021 when markets were high. It's not hard to imagine markets will still be lower at the end of 2022. Are there any suggested strategies in this situation to prepare for the distribution? Maybe in kind distributions from the IRA to the brokerage account is the best strategy?

The question for all is do we think the market will go up. Truth, honest truth is I don't know. Perhaps, an answer. RMD you are told what you must take out, AND EXPOSE TO TAX. If, you do not, you forget, or whatever, the penalties are severe.

What to do? We have been fed endlessly dollar cost averaging in terms of putting money in. You can, I AM using the same logic for my force withdrawals. If, you have your IRA and taxable account in the same brokerage, it is easy to do and the money will be in your taxable account the next day.

I would not take advice from any poster, INCLUDING ME, without confirming it. Something to investigate. The REQUIRED IRA withdrawal is taxed at your highest tax rate. No long term gains etc apply. The tax can be huge. You can donate up to 100,000 to A CHARITY and avoid paying TAX on it. It is UP TO 100,000 you may choose not to give that much. Reminder, this forced withdrawal is taxed as ordinary income and may well increase the tax you owe on other income. As stated CONFIRM what I am saying. The charity must be listed as 501c3, I think that is the code. Most charities, LEGITIMATE CHARITIES are so listed. You cannot double dip. Avoid tax on your RMD and take it as a tax deduction.

[DAVES]

Thanks Babuhat, interesting site, also as an fyi discusses:
"Securing a Strong Retirement Act of 2022,"
A bill designed to increase savings in IRAs and company plans has passed the House of Representatives, but it’s not yet law. Link Below if interested,

House Passes SECURE 2.0 Bill, But It’s Not Law Yet | Ed Slott and Company, LLC (https://www.irahelp.com/slottreport/house-passes-secure-20-bill-it%E2%80%99s-not-law-yet)

A bit contrarian perhaps. I've read they keep changing the tax code as too many people learn how to deal with it. Imagine our tax code is one hundred and eighty-six thousand pages. It is interesting to me, our government assumes continued INFLATION, long term.

[Stu from NYC]

A bit contrarian perhaps. I've read they keep changing the tax code as too many people learn how to deal with it. Imagine our tax code is one hundred and eighty-six thousand pages. It is interesting to me, our government assumes continued INFLATION, long term.

Congress made up of lots of lawyers wants to ensure full employment for lawyers with some help for CPA's

[Boomer]

For the sake of those readers in their younger stages of retirement, the advice from some financial planners is to do Roth conversions prior to RMD. Watch your tax bracket and convert as much as possible prior to that first RMD year. Who knows, the laws could change and it may not matter how well you plan. Sorry if this has already been mentioned.

That is excellent advice. I was doing exactly that. I wish I had done more. Time got away from me.

Anybody in this boat should take note.

Boomer

If you do convert to a Roth you lose the opportunity to grow your money after conversion (the portion you have previously paid in taxes). That 25% paid in taxes could be working and growing for you for many years.

As a result it is not clear to me that a roth conversion is such a good idea.

You are correct.

Conversions are not right for everyone.
Conversions are not always a good idea.
Conversions can cost you $$$

Conversions are possible hedges, possible.

"Regrets, I have a few. . .but then again. . .I did it my waaaaaaay".........

au contraire, stu and dew, I have only one regret with this one. Like I said in my response to heims01 (who originally suggested the idea of Roth conversions before RMD age) I did it. I just wish I had done more. It can work quite well for some.

There are retirees in a biz where they can retire in their 50s . . .well. . .there used to be anyway. That's just one example of a scenario where it can make a lot of sense to do Roth conversions, especially if income is lower early in retirement, resulting in a lower tax bracket.

Roth Conversion? You gotta know when to do it, decide to take the hit early, and then — watch it grow again — for years and years. And if there is enough time ahead of you, the RMD can be significantly minimized. I wish I had kept doing those conversions. I was into it for a while. (sigh)

It's like choreography. . .you have to get the dance just right.

My point is that those conversions are something for individuals to be aware of, so they can decide if it can work for them. There is no need to be dismissive of the idea.......Yeah. I know. I see. At least the two of you included a little hedge in your posts. I'll give you that.

Boomer (who sometimes knows stuff, but never pretends she does when she does not)

[CoachKandSportsguy]

Retiredguy has several very good points about planning, withdrawals, and investments.

Assuming that the IRA owner is keeping, not donating, the RMD or otherwise tax sheltering the RMD, the important points are
1) RMD is taxed at ordinary income rates.
a) how the IRA portfolio is constructed should generate enough cash to pay the RMD annually from the cash
b) this approach avoids selling portfolio to pay RMD
c) this approach requires rebalancing your portfolio from growth equities to income equities / bonds as you age.
d) assuming 100% invested in SP500 index example, selling the required amount in May each year is acceptable to maintain a constant investment thesis, however, see point 4 below. 100% equity with no re-investable income is a very high risk retirement strategy.
2) Withholding taxes on IRA distributions
a) you get to decide, it can be anywhere between 0% and 100%, your choice.
b) If you select 0% withheld, you can take the entire distribution and reinvest it in a taxable account exactly as in the IRA
c) if 0% withheld, the taxes are paid out of any taxable account you have.
With this approach you should pay estimated taxes quarterly to avoid IRS penalties
d) If you have high medical expenses, take out an equal IRA amount as the deduction offsets the additional taxes
3) Taxes represent a drag on success. If you are successful, you will have a tax applied,
a) success creates other tax effects, which is why all financial analysis alternative comparisons are done on an after tax basis!
b) tax rates can change, so the future is still uncertain, and always will be uncertain.
c) how and from where you pay taxes can be as simple or as complicated as you decide.
d) the closer you are to passing on the IRA to your beneficiaries, the more you should take out of the IRA to pay lower taxes than the working beneficiaries incremental tax rates. They will appreciate you passing your wealth in a taxable account, which has a very high minimum tax threshold.

4) future returns on equity, bonds, real estate, cash, are always uncertain. Sometimes more uncertain than at other times.
a) currently, the future returns are more uncertain than in the recent past 20 years.
b) the investment markets have long term average returns, which must have tax rates applied for after tax returns for compounding models
c) as a retiree, you do not have the long term ahead of you, so returns will become more variable and more precious
d) as a retiree, avoiding asset drawdowns is paramount to maintaining the ability to generate a return/income


These are general guidelines to start applying to a financial model of your income and expenses after one stops working. Not all working stiffs can contribute to a ROTH IRA, we can not. . . so after we stop working, converting to a Roth after losing 25% estimated taxes, requires about 6 years at after inflation 4% return, 8 percent investment return less 4% inflation. however, if you time the withdrawal poorly, the time to get back the taxes paid may be significantly longer, See point 4 above, so using a conservative return and a harsher inflation rate should be used to be realistic. .

good luck in your choices. . .

[Stu from NYC]

"Regrets, I have a few. . .but then again. . .I did it my waaaaaaay".........

au contraire, stu and dew, I have only one regret with this one. Like I said in my response to heims01 (who originally suggested the idea of Roth conversions before RMD age) I did it. I just wish I had done more. It can work quite well for some.

There are retirees in a biz where they can retire in their 50s . . .well. . .there used to be anyway. That's just one example of a scenario where it can make a lot of sense to do Roth conversions, especially if income is lower early in retirement, resulting in a lower tax bracket.

Roth Conversion? You gotta know when to do it, decide to take the hit early, and then — watch it grow again — for years and years. And if there is enough time ahead of you, the RMD can be significantly minimized. I wish I had kept doing those conversions. I was into it for a while. (sigh)

It's like choreography. . .you have to get the dance just right.

My point is that those conversions are something for individuals to be aware of, so they can decide if it can work for them. There is no need to be dismissive of the idea.......Yeah. I know. I see. At least the two of you included a little hedge in your posts. I'll give you that.

Boomer (who sometimes knows stuff, but never pretends she does when she does not)

Interesting post and if you time converting to a Roth when you have a small income for the year yes you can come out ahead but not an easy thing to think long term about when your income drops a lot.

I was not being dismissive of people converting to a Roth but just gave my thought as to one major negative of doing so. I have thought long and hard about doing this a number of times but the opportunity cost of doing so tells me not to do it. BTW my cpa is in complete agreement with me for whatever that is worth.

[retiredguy123]

Interesting post and if you time converting to a Roth when you have a small income for the year yes you can come out ahead but not an easy thing to think long term about when your income drops a lot.

I was not being dismissive of people converting to a Roth but just gave my thought as to one major negative of doing so. I have thought long and hard about doing this a number of times but the opportunity cost of doing so tells me not to do it. BTW my cpa is in complete agreement with me for whatever that is worth.
I think that converting to a Roth may make sense for someone who has a short life expectancy, doesn't need the money, and has children who are in a higher income tax bracket than they are. One of the big advantages for your beneficiaries is that they inherit the Roth account tax free, and they avoid the complicated distribution rules for inheriting a Traditional IRA.

I would also point out that one advantage to not converting to a Roth is that, if you go into a nursing home or assisted living, you can use Traditional IRA distributions to fund the cost and get huge medical tax deductions.

[Boomer]

Good afternoon, boys,

If I may reiterate…….of course this will not work for everybody.

But there are circumstances under which it can be a real bonus. (I just wrote an anecdotal, paragraphed example that included commenting on what can happily happen to the div inc tax rate in lower income years — like maybe a mid-year retirement, but then I decided to just let it go and step away from this screen. My real life awaits.)

Here’s the Cliff’s Notes version of what I wrote and then decided not to send………

I did it.

I know exactly why I did it.

I am glad I did it.

I am sorry I did not do a few more conversions in my early retirement years.

I don’t do it anymore.

I think younger people need to be aware of the possibility though.

One size does not fit all.

But it could fit a few TOTVers who might want to at least learn more.

Class dismissed.

Boomer

[CoachKandSportsguy]

There is no free lunch, just choices and good luck and bad luck with life and world events beyond our control. There is no one right answer for everyone, as each person's situation is usually unique with respect to all the potential variations of wealth and family situations.

The Roth IRA is a choice, and if it works for you given your unique circumstances, GREAT! For others, it might not make sense. That's what a great financial planner can help you make a choice, and understand your unique situation and potential outcomes. The issue is always that the future is uncertain, and for two couples in the exact same situation can make the same choices, and the outcomes can be completely different due to events beyond one's control. The different can be a state / federal pension plus benefits, or having social security and a 401K

Just remember, in the long run, we are all dead. . and in the short run, some of us will be dead. . .

I don't think anyone here disparaged anyone else's choices, and one person's successful choices might not be the best for someone else. The difference could be as simple as the difference between tax minimization strategy and a wealth maximization strategy.

good luck

[Smalley]

The qualified charitable deduction goes straight from your IRA to the charity. There is no relevance of itemizing or not. It's a tax-free transfer so really the best way to donate once you are taking your RMD.

[davem4616]

with the current projections of COLA increases for social security in 2023...I'm looking at an annual increase of 6K

that's not too shabby...I don't need my RMD, so I'll just sock that away

Hopefully I'll weather this economic storm and come out on the other end okay...

[elevatorman]

I'm taking my RMD in December and treating myself to a half a tank of gas.:boom:

[Fltpkr]

Post this over in the Bogleheads forum for additional input.

[justjim]

Thanks for all the excellent comments and suggestions regard RMD’S. I have been withdrawing RMD’S for several years and this Thread has been interesting/informative and from the information posted here it appears that my CPA and mentor/advisor has done his due diligence in advising me on best practices regarding my IRA required minimum distributions. That said, my advise to others who are in the “same boat” as me when it comes to taxes and RMD’S - get some help and advise regarding distribution of your RMD before you reach the required age for distribution and your tax advisor will save you more $$$$ than his/her advise will cost. Fore!