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Fidelity Launches Funds That Can Make RMDs For Aging Baby Boomers
This is one of the dumbest things I have heard in a long time. Schwab, Fidelity, Vanguard, and all custodians of IRAs and other retirement accounts can and do automatically calculate RMDs. Investors can opt for the custodian to automatically distribute the RMD on a regular basis, withhold specific federal and state taxes, and deposit the after-tax amount in a corresponding brokerage or bank account. As the article says, for these to make sense (and I would say they do not make any sense at all), investors should consolidate all of their retirement dollars into them, "which some would be reluctant to do". No kidding.
This is just a repackaging of Fidelity's managed payout funds, though you can't tell the players without a scorecard. Fidelity's original managed payout funds were designed as "pseudo annuities" that would exhaust their assets on their target dates. In contrast, some other managed payout funds, like VPGDX, are designed to provide a constant income stream indefinitely.
Some of the Fidelity managed payout funds were rebranded and closed, e.g. Fidelity Managed Retirement 2020, FIRVX, was originally Fidelity Income Replacement 2038. I believe the difference in dates is because the former is about the time you turn 70.5 (but I'm not quite sure); the latter the date the fund is exhausted.
Other Fidelity managed payout funds were rebranded as Simplicity RMD funds, e.g. Fidelity Simplicity RMD 2020, FIRWX, Fund was originally Fidelity Income Replacement 2040. These are the "new" funds that are now open.
"They have an optional feature that automatically calculates and distributes an investor's RMD from the account."
Bzzzt. Wong reporting (what else is new?). Here's Fidelity's PR page, saying (like the prospectus) that "The fund's investment objective is intended to support a payment strategy designed to be implemented through a shareholder's voluntary participation in a complementary systematic withdrawal plan" - not a feature of the fund itself. That is, just what BobC described that's available for any other fund.
Though Fidelity offers such services (i.e. RMD calculations and automatic withdrawals), (a) they don't always get the calculations correct, and (b) other IRA custodians may not provide this service at all. Suffice to say, this comes from actual experience (helping a relative).
The lesson: you're the one responsible for RMDs, regardless of the service you expect the custodian to provide. All that these Simplicity RMD funds do is provide glide paths that may or may not suit your RMD needs.
Comments
This is just a repackaging of Fidelity's managed payout funds, though you can't tell the players without a scorecard. Fidelity's original managed payout funds were designed as "pseudo annuities" that would exhaust their assets on their target dates. In contrast, some other managed payout funds, like VPGDX, are designed to provide a constant income stream indefinitely.
Some of the Fidelity managed payout funds were rebranded and closed, e.g. Fidelity Managed Retirement 2020, FIRVX, was originally Fidelity Income Replacement 2038. I believe the difference in dates is because the former is about the time you turn 70.5 (but I'm not quite sure); the latter the date the fund is exhausted.
Other Fidelity managed payout funds were rebranded as Simplicity RMD funds, e.g. Fidelity Simplicity RMD 2020, FIRWX, Fund was originally Fidelity Income Replacement 2040. These are the "new" funds that are now open.
"They have an optional feature that automatically calculates and distributes an investor's RMD from the account."
Bzzzt. Wong reporting (what else is new?). Here's Fidelity's PR page, saying (like the prospectus) that "The fund's investment objective is intended to support a payment strategy designed to be implemented through a shareholder's voluntary participation in a complementary systematic withdrawal plan" - not a feature of the fund itself. That is, just what BobC described that's available for any other fund.
Though Fidelity offers such services (i.e. RMD calculations and automatic withdrawals), (a) they don't always get the calculations correct, and (b) other IRA custodians may not provide this service at all. Suffice to say, this comes from actual experience (helping a relative).
The lesson: you're the one responsible for RMDs, regardless of the service you expect the custodian to provide. All that these Simplicity RMD funds do is provide glide paths that may or may not suit your RMD needs.