I've taken half of my RMD this year as QCD's, and I feel good about that. A few of my funds (PRGTX, PRNHX, VPCCX, etc) have surprised me with hefty CG distributions. I'm wondering if I should hold off on the 2nd half (I'm 70½) until 2019, because I'd like to take it as income, and I'm thinking that CG distributions will be lower next year. I'm in the 24% bracket. I have until 12/31 to decide. Any thoughts (all other things being equal)?
Comments
It sounds like you want to use the other half for income. But it's not at all clear whether your concern is over CG distributions inside the IRA or outside. In what follows, I'm assuming that they're inside, though the next couple of paragraphs apply either way.
I think that CG distributions are a distraction. IMHO they are simply return of principal. So it doesn't matter if you sell fund shares in your IRA to generate cash or take CG divs, it amounts to the same thing.
The reason why I view them as return of principal is: a fund owns various securities. Say that some of them appreciate. The fund has unrealized gain. If the fund swaps those securities for other securities, the principal is unchanged, but the fund has realized gain.
No difference in your principal. But due to tax laws, in December, the fund is (conceptually) required to sell off some of its principal to pay those cap gains divs. (For investors who "reinvest" those divs, it doesn't have to sell some holdings; on paper the investors get cash that goes right back into the fund to "rebuy" the same fund holdings.)
If you're tapping principal for income (as I feel one does by taking CG divs in cash), then the question becomes what is a good time to sell principal? I leave it to each individual to guess whether this is a good time to lighten up on investments or a good time to be buying.
The other half of your question seems to be, given that you're going to be taking a certain amount of cash out of your IRA for income in the next 12 months and four days, whether you're better off taking part of that now, or all of it next year.
If you're in the 24% bracket in both 2018 and 2019, then from an income tax perspective, it won't matter. Either way, that 2nd half of your RMD will be taxed 24%. But if it would push you into the 32% bracket next year, you'd be better off taking it now - even if you leave it invested in funds in a taxable account (so as not to be tapping principal now).
There may be another concern. In the 24% bracket, you're likely paying IRMAA on Medicare. (Some retired people have medical coverage paid for as part of their retirement benefits; they may be protected from IRMAA.)
I haven't gone back to cross check the IRMAA brackets against the income brackets, that's something you would have to do yourself. Especially since IRMAA is based on MAGI that includes the 15% of SS that isn't otherwise taxed and non-taxable income. (If your CG divs are outside of your IRA, they would also get included in MAGI.)
If you wait to take the second half of this first RMD in 2019 AND you take your second RMD in 2019, it might increase your total income more than you intend.
OTOH, if a large portion of it will be a QCD (and you stay under the $100,000 limit), maybe you don't need to worry about the effect on your taxable income (or IRMAAs).
I'm of the same sentiment -- I feel good about using the IRA as source of charitable contributions. I did all that in January, so the recipients would get the funds right away.
David
The only Qualified Charitable Deductions I ever handled were when I helped my mother with hers.
As far as IRMAA goes, I never met anyone named Irma(a). Nor, with good tax planning, will I ever pay an Income Related Monthly Adjustment (surcharge) Amount on my future Medicare premiums. I'm still dealing with ACA premiums that are much higher than Medicare premiums even with IRMAA surcharges. Such are the tribulations of youth.
On a side note, SS just sent us letters raising our IRMAA Part B and D to $270 next year. My wife thinks I should make up the difference to her since I'm "at fault" for having income. Ha Ha! Happy New Year.
And, if you have ever been audited by the IRS ... as I have ... then you know where I am coming from with my above comment. It seems if they can't nail you for one thing then they want to keep looking for something else to get you on. My audit covered multiple years. Thank goodness they finally accepted my returns as filed. I'm thinking this might have been in part because I left some gray area deductions, that I might have been entitled to, off the returns.
Simply stated ... You don't want the IRS after you over a few measly bucks.
One might as well suggest that contributing to a 2018 IRA in March 2019 is a gray area.
Here's an IRS page clearly stating that both of those are fine. Just following the rules of the game.
https://www.irs.gov/retirement-plans/ira-year-end-reminders
(Meant as a compliment.)
David
You noted: "On a side note, SS just sent us letters raising our IRMAA Part B and D to $270 next year."
Is this each (you/spouse) or total for both?
Thanks.
Catch