Fair Warning..Conventional IRA vs Roth
 

With the stock market moving down and your instinct being not to make withdrawals, just remember if you have a conventional IRA and you are 70 1/2 you are required to make withdrawals wether you want to or not.
That means that RMD is going to take another bite out of your IRA in a down market.
Example: 4% RMD and 1% management fee add to the losses in valuation of you IRA.
Any thoughts about a ROTH IRA?

If you have to cash out stocks from a traditional IRA because of the RMD, you should be able to replace the stocks you sell, either inside or outside of the IRA. That is, assuming you have some diversity and/or extra cash to repurchase the stocks.

Every American should have a Roth IRA.

Not every American. The Roth IRA never made sense for me because my income was always too high to contribute. The only other way was to convert money from a traditional IRA to a Roth, but that would have resulted in paying taxes on the amount converted. By the way, you cannot convert RMD money to a Roth.

You should find someone you trust
 

A simple idea to find someone you can trust. Unfortunately it is far easier to say than to do. Most financial advice comes from someone trying to sell you something.

Required Minimum Withdrawal. NO ONE WANTS TO PAY TAX.
But, we lived in NY when I was earning the money. Money I put into an IRA, actually a SEP IRA allowed me to put away more than the original $2,000 limit. The deal was, save now and pay the tax later. As ex NEW YORKER'S, b moving to Florida, we escaped ever paying a 6% state tax, a 3% city tax on top of my higher than now federal income tax-I'm in a lower fed tax rate.
Oh and not certain but I think I also escaped the 13% I had to pay into social security.

I am not qualified to advise but that stated 4% RMD and 1% management fee. The percentage, your stated 4%-I'm not sure that is right or wrong. It goes up percentage wise as you get older. As I understood it you are supposed to expose your entire IRA to tax due to forced withdrawals by the time you reach 100.
Being a bit of a wise guy I told them they could keep xxxxxxxx if they will guaranty I live to 100.

If, you are paying 1% for someone to manage your IRA. You may want to check to see what the TRUTH is. If, you are paying 1% in total fees that may be reasonable. If, you are paying someone 1% to pick investment funds for you, you are paying twice. Once to the 1% person and then again you are paying management fees to the fund.

It is mind control by EXPERTS. If, you have a stock fund or whatever. You made 10% on it in ??????? and the management fee is 1%. Same number stated differently. At 1% they are taking 10% of what you made by risking YOUR MONEY. In a down year. Reminder the stock market goes down some years.
YOU lost say 10% so your return is minus 10% they still will take 1% of the total you have in that fund. Actually today, unlike in the past, the return they show on the fund is after the fees.

As, to shoulda coulda mighta. Hindsight is always 20/20. The best place to have had your money in 2018 was CASH. Right now you can get about 2.5% in the money market You can get free checking with that.

TAKE NONE OF THIS AS ADVICE-I JUST TRY TO POINT OUT WHAT MANY DO NOT SEE

Re: Roth conversion
 

To do or not to do. No one on this website does or should have the needed information to advise you.
I am a contrarian. It was not that long ago when the talking heads were all singing the same song. Taxes are low the government debt is rising surely they will go up-RUN OUT, CALL ME, CONVERT TO OUR ROTH IRA BEFORE THE SKY FALLS DOWN.
HUM. there was a time when you could convert to a roth and then if you wish reverse it-If, I recall you needed to do the retraction the first year.
First the reversal option has been removed. Secondly rather than to go up AS THEY WERE SCREAMING, taxes have gone down.
As I stated elsewhere, your RMD is calculated on you living to be 100. You may want to look into an inherited IRA, My mother had an IRA-less than 100,000. When she passed away she left it to my sister and me as an INHERITED IRA. I'm not yet 70.5 but I do need to-AM FORCED TO take an RMD on that account and yes it is taxable to me-my mother never had to pay the tax on it. It is a bit of a pain in the neck BUT, it is a gift that keeps on giving years after my mother's passing. Aside-I could if I wished to withdraw the entire amount and pay tax on it. Surely, she would have had far more had she invested in the stock market.
Had she invested in the stock market say she bought ??????
for $100 over the say 42 years she had saved if it went up long term for the market of 8% a year it would be worth about 525.
I would have received it valued at the time of her death so 525
That 425 gain would not have been subjected to double taxation

My addition to all this advice, take time to read Paul Merriman’s 3 free ebooks.
1. First-Time Investor
2. 101 Investment Decisions
3. Get Smart or Get Screwed

Found at paulmerriman.com

There used to be an income cap on converting from an IRA to a Roth so I was unable to convert until an anomalous year occurred at which time I took advantage of the situation and converted what I had in my IRA. I was never able to contribute more to the Roth but am happy I could at least get some funds into a Roth!

Recently the cap was removed. Roth IRA Conversion Rules | Can You Convert from a Traditional IRA?

Agree.

OK you can’t put your RMD money in a ROTH, but you can roll some or all of your conventional IRA into a ROTH. Consider tax consequences of doing that.
If your not 70 1/2 it might be a good idea to look at an RMD calculator. Plug in the numbers to see the results. Hypothetically you will still have money at age 100 left in your IRA. The downside is that the withdrawal percentages keep going UP which takes away some control from you. Of course for 2018 if your IRA lost value your RMD will be less even though the percentage it is based on goes up.
Consult your favorite Investment Advisor for the facts.
I naively thought I could meet the withdrawals requirement by taking out some money, not realizing that there is a REQUIRED withdrawal amount. Yes, I have a have an advisor. Apparently those portfolio “chat sessions” twice a year don’t cover all the important relevant topics.

I think for most people who don't need the money, it is best to leave the traditional IRA alone and only withdraw the RMD every year, thereby delaying taxes as long as possible. One thing to consider is that, if you eventually need to go into assisted living or a nursing home, you will be able to use the traditional IRA funds, and possibly benefit from a huge medical tax deduction that could reduce your taxes at that time. I know one guy who converted all of his traditional IRA to a Roth so that his heirs would not need to pay the taxes. I guess that is another way to look at it, but it would not be my choice.

Yes the stock market is down but you don’t have to take your RMD now, you have all year so more than likely the stock market will go back up, don’t panic sell. As I get older I have sold stock to rebalance stock vs liquid assets so I always have enough cash to take my RMD. My rule over the years has been “never get in a position where you have to sell”.
I don’t have an advisor and my IRAs are with Fidelity and there are NO FEES at all on them. I moved from Merrill Lynch many years ago because of this. Keep cool, take time to think and do your best to keep the fear and greed out of your investment decisions.

This is all very interesting to me (I'm 18 months from my first RMD). I have a question about the rate of return percentage used by the on-line RMD calculators. Most have 6% preselected, but you can adjust that rate in the calculator and come up with significant different RMD results. Is this percentage amount directed somewhere by the IRS? I can't find anything in Google that would answer my question. It makes a big difference to the calculation over time.

RMD Requirements
 

Put your money in AT&T stock at over 5% and take the dividends. They have increased for about 40 years in a row. No worries.

Since the RMD is computed on you IRA year-end balance, the rate of return figure you use will affect that balance and therefore your RMD. If your IRA grows more than 6%, your RMD goes up: if less, not as much.

When planning for the RMD, an awareness of tax consequences can be helpful to the bottom line.

If the RMD hits the AGI, it can then find its way to taxable income.

The QCD has been permanent (???) in the tax code since the end of 2015. (The QCD has been around for a while, but I think before 2015, Congress announced it on an annual basis.)

If you are charitably inclined and are reaching RMD age (or already there) and are unaware of the QCD, you might want to learn all about it.

If you choose to use a QCD for your RMD, it must be done perfectly and with careful records so that the distribution does not hit the AGI. That Q means the charity must be ‘Qualified’ which I think is explained under section 501(c)(3) of the tax code. (I am not an accountant. Please check everything I say if this info interests you.)

You cannot make a QCD to a Donor Advised Fund — like Fidelity Charitable, for instance. The donation must go directly to the qualified charity you choose.

(I had a long back and forth email argument with a friend who was believing his financial advisor instead of me. He was being advised to use his donor advised fund for a QCD. Donor Advised Funds can be helpful at tax time, but at RMD age, a QCD can work better.

I finally got his attention and then he got the attention of his financial advisor who was completely unaware of the specificity of the QCD. I have to wonder how many were steered wrong before some retired high school teacher — a girl! (gasp!) made those guys do their homework.)

So if this is new information to you, do your homework on potential tax consequences of the RMD that can be buffered with the QCD, if you are charitably inclined anyway. Do not forget to be aware of those Medicare thresholds for increased premiums should you decide to distribute a big chunk, as income, to get it over with. Two years later, you could be hit with a much higher Medicare premium.

— In other words — School Thyself. :)

You are so right ! I was never a particularly high earner but a Roth never made sense for me. It really depends on your circumstances, do you work for a public or private sector, all kinds of considerations. For some it is indeed a good vehicle, but certainly not for most at all. My major concern is HOW MRD's are figured, WHEN they are figured, etc. I am quite frustrated with the variety of answers I have received by Fidelity (depends on which rep you get on which day as to the answer). One Vanguard rep just said she really was not sure !
Will my new MRD be figured on my balance on Jan. 1, 2019 ? Even my tax preparer gave an answer different from the two brokerages mentioned ? Dah !!

Not to be sexist but -- Many times the best "man" for the job is a woman!

Calculating your RMD (required minimum distribution) is not very difficult. For example, if you will turn 70.5 this year (2019), your RMD for 2019 will be the balance of your traditional IRA on December 31, 2018 divided by 27.4. For following years, the calculation is done the same way, but it is always based on the IRA balance on December 31 of the previous year and the number you divide it by gets lower each year based on an IRS life expectancy table. Many people think that IRA is an acronym for "individual retirement account", when in fact, it stands for "individual retirement arrangement". The IRS doesn't care how many IRA accounts you have, they only look at the entire balance of all accounts. The problem comes in when you have multiple IRA accounts with different IRA custodians. It is not possible for Vanguard or Fidelity to calculate your RMD unless they are the custodian for all of your IRA accounts.

Thanks retiredguy123, the RMD calculation is quite simple as you point out. Hardest thing is going on the IRS site and finding the number for your age that you devide your 12/31 IRA balance by. Fidelity posts my RMD right on my page when I sign on to the Fidelity site. Why would you call them and ask? The Fidelity rep should direct you to sign on and look at it or look at it for you.

Roth IRA. Too late for most on this site but for younger people it’s tereffic, if your income lets you do it. All the gains you make on investments over the years are TAX FREE when you withdraw the money.

Another thing to consider when you start taking your RMDs is whether or not all of your traditional IRA money is taxable. Some people made IRA deposits or transfers with after-tax money. If so, a percentage of their RMD is not subject to income tax. This percentage would be shown on your last Form 8606 filed with the IRS as part of your tax returns.

Hi Ladygolfer,

The RMD amount to take for 2019 is figured on the balance in the IRA on December 31 of 2018.

If you Google the question of how to determine the amount, you will find information, including the IRS publication. But the info can look a little convoluted at first glance, and second glance, on some of the sites.

If you have reached RMD age or if it is arriving in 2019, and if your IRA is on deposit in an account you can see online, you might find the amount is already calculated and posted there for you — for that account only.

If you use bank CDs, the bank’s computers should already have that amount calculated, too. It could appear on a statement or you might need to contact them for the amount — again, for that account only.

Something to keep in mind is to be clear to understand that if you have multiple accounts, and those accounts are all of the same type of IRA, the RMD from all can be totaled and the entire RMD taken from just one of the accounts. (Once again, my disclaimer: Please check anything I say with an actual accountant — that would not be me.)

Someone in this thread made the excellent point of not getting into having to sell stock to pay taxes. Good advice. One thing that can help is to allow dividends to accumulate instead of reinvesting them or to maintain liquid cash somewhere else but in the same type of IRA account.

(Geez. I have no idea why in the world I like to talk about taxesz-z-z-z-z. I think I need an intervention. I will try to shut up now. But first, be forewarned, once more, that it is entirely possible that I have no idea what I am talking about.)

It is an excellent point that, if you have multiple traditional IRA accounts, you do not need to take money from each account to satisfy the RMD, even if each custodian makes a separate RMD calculation. The only RMD calculation that matters is the total for all accounts. You can take the money from any of the accounts to satisfy the RMD. If possible, it makes a lot of sense to consolidate all of your IRA money under a single custodian, who can calculate your RMD every year, and make it easier to not make a mistake.

I have kind of a follow-up question to this thread. Can a person merely pay the owed taxes (out of current income) based on the calculated RMD each year without actually selling the stock, bonds, 401k, IRA, etc.? It seems to me like such a hassle and expense to sell the required RMD amount and then put the balance back into an investment, probably the same investment.

Someone may also want to verify this. I believe that if you have a 401K plan along with a traditional IRA you must also take an RMD from the 401K plan and it must come out of the 401K plan. This would be a separate calculation and withdrawal from your traditional IRA

I was just talking about a traditional IRA, not a 401K. But, if you are retired, you can transfer the 401K funds into a traditional IRA. When I retired from the Federal Government, I immediately transferred my entire TSP account into my traditional IRA.

You have to actually transfer the RMD funds out of the IRA. But, you may be able to move specific stocks and bonds from an IRA account into a non-IRA account, without actually selling them.

Hi tanderse, and thank you, rg123 for your answer.

I have not done this, but it is something that interests me.

(I have said it before and I will say it again -- it is a good idea never to put yourself in the position of having to sell stock to pay taxes. Cash on the side can protect the investments, but here we have more to the story.)

Taxes on such a transfer would, of course, be on the face value of the shares on the date of transfer and not on just the gain.

It is necessary to understand all the moving parts in this one -- like cost basis -- but it can be a really good idea.

Anyway, I am linking here an article on the topic. The source is Kiplinger. I like articles from Kiplinger because I think they communicate well for those of us who just want to learn some things but we do not want to wade into esoteric territory.

I hope this link helps.

Boomer :)

Retirees, Shift Stock to Satisfy Your RMD

Remember the current tax code expires in 2025. Doing significant Roth conversions before then could save you big dollars if the tax code reverts to the previous Tax rates. So I see Roth conversions as a hedge to future tax increases.

If you search the web both bankrate and Vanguard have RMD calculators. The RMD for the coming year is based on the value at the end of the year proceeding. To simplify things, if you have an IRA account, the RMD amount will be shown on your January statement. On RMD calculators you can plug in a projected annual rate of return to see a projection of your account vaiue and projected RMDs over time. With variations in annual account returns the projected values probably won’t match reality.

These RMD calculators only work if you include all of your traditional IRA accounts or 401K accounts. I think it is a good idea to consolidate all of your 401Ks and traditional IRAs into a single traditional IRA under a single IRA custodian, like Vanguard. Then the custodian will tell you what your RMD is every year. You don't want to make an RMD mistake.

Ira
 

I am pretty sure that your RMD is not based on 100 years old

Here is the IRS Required Minimum Distribution worksheet and chart for each age.

It calculated to age 115 and older.

https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf