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When do you take your annual RMD? (Traditional IRA)

edited October 1 in Other Investing
Usually, I’ve pulled it around mid-year. This year I’m thinking of waiting until after December 1. It’s a relatively small amount as I’m mostly in Roths. I’ve noticed “reminders” to take it by December 31 whenever I log in to Fidelity recently. The amount they display is correct since I don’t have any other Traditional IRAs. Can I assume I’m OK waiting until sometime in December? Any drawbacks to waiting (except that the markets may slide before then)? I don’t desire to have Fido become overly concerned.

Comments

  • edited October 1
    I always pull RMD's in Dec. Why not let it grow tax free as long as possible. Your RMD should have been moved to ultra short term bonds or preferably MM much earlier in the year. That way you don't worry about the market going down. I usually have 2 years of RMD in safe MM or bonds and another 3 years in other bonds.. That way I could care less if the market tanks and takes a year or five to recover.
  • Earlier in the year you might require a higher quarterly estimated tax payment so waiting until late might save be better unless you are paying 100% of last years taxes
  • We have two deferred accounts requiring RMDs; one provides a monthly draw for living expenses, while the second will be withdrawn in December. Both have taxes withdrawn during distribution.
  • edited October 1
    Thanks folks. If I needed a large chunk I’d pool the funds earlier in a cash equivalent as gman57 suggests. With most markets near record highs - good advice. But that’s not the case for now anyway. One reason is the “interest-free” (til 12/25) Fido Visa account I opened last summer. Recently put a big infrastructure project on it. Can pull funds gradually during ‘25 instead of all at once. (Appreciated all the earlier comments re that on a different thread.)

    Also … age has pushed me towards a pretty conservative portfolio. So, big market moves don’t affect it as much today as say 5 or 10 years ago. Mainly, I just don’t want Fido to throw a “Hissy Fit” thinking I’ve forgotten.
  • I like to torture their robobot personal assistants!
  • Fido isn't going to harass, but will provide reminders. A good thing, IMO.
    We pull RMD's in early December. As Fido has an excellent step by step as to 'what do you want to do with the withdrawal'. We always choose 90% to the IRS for the FED side and the remainder to the Michigan taxes side. Our RMD's have become large enough to affect our taxes due.
  • @catch22 : 90% to the IRS ? I'm more like 15% to IRS & 5% to State.
  • edited October 1
    @Derf We 'run' what we know will be likely taxes owed for the next year right to the 'very edge' of owing a 'penalty' for under payment. The 'extra' tax payments pulled from the RMD's get us into the proper 'zone'. AND our IRA investments are able to work for 11 months of the year.
  • We always choose 90% to the IRS for the FED side
    Is this a typo @catch22? You're saying you pay 90% tax?
  • Am I correct that tax witholdings on RMDs as late as December count for the year and do not require estimated taxes to be filed quarterly?
  • I'm guessing that catch may just use the whole RMD as a tax payment... sort of like paying estimated taxes. If so, interesting idea.
  • @sma3, yes, that applies to all withholdings (payroll, IRA, etc) - they are considered distributed throughout the year.
  • Hi @MikeM
    OH NO !!! A high enough tax bracket for sure, but not that.:)
    As noted by @Old_Joe, we use all of the RMD's (both of our IRA's) and rather than place the money back into Fido investments or transfer to our CU acct.; we direct Fido (a few simple entries) to direct the money(s) towards FED and state taxes; and a type of 'estimated' tax payment in December. We generally have a good idea of what our tax obligation will be and this usually satisfies this without having to be concerned with 'underpayment'. Worse case would be to make a true estimated payment to the FED and state via their online program.

  • edited October 1
    sma3 said:

    I like to torture their robobot personal assistants!

    I like that.:)

    FWIW - ”Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.”

    Source / IRS

    I first heard of this about 20 years ago. And it has worked over the years for me without problems. I’d prefer to owe the IRS some money in April rather than wait for a refund. Note: Not intended as tax advice.



  • First week in January
  • January here, too. Taxes are not a consideration. Normally, there's large pay-outs in December. Take the money in the New Year and you have the advantage of using it or saving it for the upcoming year. But for me, the withdrawal is not an RMD, yet.
  • @hank
    From your link:
    The law allows the IRS to waive the penalty if:

    1. You didn't make a required payment because of a casualty event, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or

    2. You retired (after reaching age 62) or became disabled during the tax year or in the preceding tax year for which you should have made estimated payments, and the underpayment was due to reasonable cause and not willful neglect.
  • It is concerning that the IRS chart discussing the differences between RMD for IRAs and Defined contribution plans still uses 72 as the age for RMDs ( even though it says it was updated 8/2024)

    " April 1 of the year following the later of the year you turn 72 (70 ½ if you reach 70 ½ before January 1, 2020) or the year you retire (if allowed by your plan). If you are a 5% owner, you must start RMDs by April 1 of the year following the year you turn 72 (70 ½ if you reach 70 ½ before January 1, 2020)."

    https://www.irs.gov/retirement-plans/rmd-comparison-chart-iras-vs-defined-contribution-plans

    The "FAQS" page has the correct information

    "(73 if you reach age 72 after Dec. 31, 2022). "
  • I have been fiddling around with procedure for with holding taxes on RMDs in anticipation of my withdrawals next year.

    Does anyone have experiences on Schwab of Fidelity's with holding policies? Can you have most or all of RMD withheld for taxes?

    I just checked with TSP. They will only withhold a certain maximal % but won't tell me what it is
  • edited October 2
    ”Can you have most or all of RMD withheld for taxes?”

    I did something like that at T Rowe once. Must have been to meet tax obligation after doing a Roth conversion elsewhere. ISTM it should be simple to do what you are requesting online at Fido. Just go slow and back-out before hitting send if doesn’t appear correct. I often specify “no taxes withheld” when pulling small sums from my traditional IRA at Fidelity.

    Drifting here … but had an awful time with TRP regarding state tax withholding. Required me to mail in paperwork yearly to allow not withholding it. Then, they changed policy w/o informing me and just took the money regardless of any paperwork or phone calls I made. Gosh - just remembered another reason not to deal directly with TRP.
  • edited October 2
    ”Can you have most or all of RMD withheld for taxes?” Yes, at VG one year I did, RMD == withhold 70% for Fed taxes and withhold 30% for State taxes. So example: RMD was 10K, 7K went to the Feds and 3k went to the State.
  • Same thing as what catch22 is doing. Hey, if it's convenient for someone, why not?
  • Over the years, I have chosen varying ways of taking my RMDs, at differing ways. When I was heavily using a Bond OEF strategy, I chose to take my RMDs on a monthly basis, from the monthly and predictable PIMIX monthly dividends. A few years ago, PIMIX started having some problems in their dividend distribution predictability, so I switched to other dividend paying bond oefs, such as SEMMX, and essentially took RMDs, later in the calendar year from "accumulated" dividends that I had reinvested. Unfortunately, I abandoned these risky nontraditional bond oefs, when they started showing major drops in market corrections. For the past several years, I have been a CD investor in a rising interest rate environment, and I would base my RMD harvesting on specific CDs maturation date during the year, preferably late in the calendar year. Now, I am faced with a falling interest rate environment, and faced with some tough choices on how to reinvest maturing CDs. For now, I am just placing maturing CDs into higher paying money market funds, paying close to 5%--I will likely harvest RMDs from money market funds very late in the calendar year from accumulated interest earnings. I will have to re-examine my options starting in 2025, based on what I choose to invest in going forward. So my short answer to harvesting RMDs, is that I choose to be very flexible, change as I need to, in conjunction with my changing investing choices.
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