My yearly process is to take my RMD on Feb 1st. I take only what the RMD amount is, and I have withholding taken out. Then I reinvest the RMD to create as much income as possible to offset the tax being paid on the RMD. My accountant also provides the 4 estimated tax payments to be made during the year taking everything into consideration. This system works well for me.
If you're investing your entire adulthood, and you have to take RMD at age 73 years old that is a great problem to have and you should enjoy the money before you die
My RMD totally goes straight to a charity so I don’t incur any taxes on this withdrawal. I take it out in the first two months of the year and it’s all over for the year. Works great for me.
My tax professor said look at total return, not just tax avoidance. In general you are always better off to delay withdrawing tax sheltered retirement funds. This usually means taking the minimum withdrawal so the balance can earn tax free. The idea of having withholding on your withdrawals is a good simplifyer
What is the problem with taking money out of your IRA. I am 68 and have been taking money out of mine since the early withdrawal penalty stopped at age 59 1/2. The money is for spending in your retirement. Not to leave in there until you die. You have been paying income tax your whole life. So you have to pay some taxes out of your withdrawals. You are probably going to be in lo lower tax bracket then you had real income anyway.
We take our RMDs in January as our travel budget. Our taxes on that money has been 12% the past few years against 20% plus when we deferred that income. Working for us.
I think one potential approach to take would be to buy fixed income securities at a level that would more than cover the projected RMD that would mature inside the taxdeferred account and maybe have it continue to earn interest until December 1st or so. Then take the RMD from that cash, take 20% withholding from it, and that withholding will cover the tax obligations for the year. For example, if your first RMD is at age 73, buy TIPS five or ten years in advance that would mature that year and in sufficient quantity to cover your estimated taxes. You’ll have all the principal available as well as the interest collecting during that time. This would free you from having to sell a stock or fund that might be depressed that year. The other strategy to take would be to try to convert a great deal of your tax-deferred accounts (TDA) to a Roth IRA, but not necessarily all of them. The TDAs can still be useful for funding deductible expenses like long term care that’s not covered by Medicare.
I am fortunate that I don't need my RMD during the year so I apply late November. The RMD is delivered in early December as stock into a brokerage account previously established. I have more than required for taxes deducted at that time. I do not file EST during the year and I usually receive refunds in late April. The RMD is still invested in the Market...winner, winner!
Good info-Why would you take fed tax withholding and you could lose investment opportunity (assuming you have adequate funds) as my dad would say! Plus why wait for a potential check from the IRS just pay it on 4-15!
If the value of your investment /pension accounts DIDN'T rise last year, to get back to pre-2020 levels, you were a lousy investor and it would be a bigger problem. Getting more money as your RMD and paying taxes FROM the increase shouldn't be a surprise- unless you are lazy. Every company holding an IRA or 401k lets you know in January what it will be for the nexfuture increases t year - while you are still preparing the previous year's tax return! That means you can plug in already-calculated RMD and see the tax effect A YEAR BEFORE the higher bill comes due. (Estimated payments are based on the previous year's return). Just add half the rate of inflation to your social security payment and any decent tax software, will show you next year's approximate total tax payment. Put whatever you don't need of the RMD into a brokerage account, and if your retirement accoutas are well thought out, it will rise as fast as they do. A non-retirement account doesn't have RMDs future RMDS, and LTCG are taxed at lower rates when you do draw from them.
I still have a few years to go for RMD. Do investment companies (Empowerment for me) holding the 401k calculate the amount for you? Do they typically charge fees for the distributions? I assume it's always done in a lump sum.
Oh, stop complaining about your RMDs. Instead, think about what a great problem it is to have that you haven’t NEEDED to take money from your accounts already. I do taxes for low income filers. You have nothing to complain about.
