RMD
I need to take out my rmds now from 3 different IRA accounts. One is doing well and the other 2 are way down. Which one should I pull the money out of? I keep hearing don’t take it from the ones that are doing poorly. I don’t know if this is true or not. Taking money from accounts where you are losing alot does not make sense but I don’t know.
Kindly answer this. Thank you. I need an answer ASAP.
Permalink Submitted by Alan Spross on Thu, 2008-12-18 18:15
There is no real answer for this unless you know the future for the various holdings. If you are going to sell holdings you want to sell those that have more of a chance of further losses than those that are likely to gain, but that depends on the future dynamics of each investment. Those that are saying not to sell the poor performers are assuming that they have taken their lumps and have more recovery potential than those that have not been hit hard. This may not necessarily be true.
There is a way around this and that is taking your RMD as an in kind distribution rather than cash. If the shares are tranferred to a taxable brokerage account, you have satisfied your RMD and nothing has been sold. You still own the same holdings, and they have a tax basis equal to the value on the date of transfer.
If you do not want to to that, you could hedge your bet by simply taking the RMD in proportion from each account, or using any cash positions already there, such as MM funds.
Permalink Submitted by Alan Spross on Thu, 2008-12-18 22:09
If you never expect the funds to do well, then you should sell them and not limited to just your RMD.
What I meant by transferring them to a brokerage account was that you would still have them, but the transfer would satisfy your RMD and WOULD be taxable. It is taxable whether you take the RMD in cash or in shares.
If you simply want to know what funds to cash in in your IRA so that they can mail your RMD check in cash, then sell the holdings that you expect the worst future results in. You cannot always assume that the worst ones over the past years are going to be the worst ones in the future.
Permalink Submitted by Marcia Brill on Sun, 2008-12-21 18:24
Alan, getting back to your original suggestion to transfer funds to a non-retirement account I am not selling these funds. However, don’t you still have to pay tax on this? How is my RMD satisfied by doing this and is there really an advantage? Am I better off taking everything from my good fund since it is in a money market and just hold the other IRA funds? Need to tell somebody something by tomorrow. Who wants to pay taxes on funds that are down. These particular funds I doubt will ever be good. Thanks.
Permalink Submitted by Alan Spross on Sun, 2008-12-21 19:22
Doing an in kind distribution of shares for your RMD is taxable just as a cash distribution would be. But it does eliminate the sale of shares and transaction costs to switch to different holdings.
The main advantage is that you are not cashing out shares when the market is way down. The net result is the same as taking a cash RMD, putting the cash in a brokerage account and buying back the same securities, except without the transaction costs and without being out of the market for a period of time.
The above strategy would not apply if you never expect these funds to be any good and to always do worse than the market in general. In that case, you need to change the investments in amounts much more than your RMD, since your RMD does not reach 10% of your balance until you are 92. But if you need to satisfy your RMD right now, then you might as well sell the shares in the IRA and take cash for your RMD.
The main difference is whether you want to hold on to these shares ……or not. Seems like you would rather not, and do not expect them to recover.
Permalink Submitted by Alan Spross on Mon, 2008-12-22 02:38
[quote]This is really getting to me. Okay if I do it this way, my husband says taxes have to be paid so what is the advantage. The only other thing I can do is take the RMDs from the fund that is doing well and in a money market and leave the 2 other IRAs alone for now. I really think they will go nowhere but I don’t want to take a loss either. I keep hoping they will come up a little, but all they do is go down.
I appreciate your responses. What capacity are you in? Meanwhile one of my funds already took out the RMDs without telling me and took too much out. They are looking into it. quote
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Note that if you have more than one IRA account, you can take your total RMD in any combination you wish over those accounts. For example, you could take the full RMD amount for all accounts from just one of them. If one fund took out too much, you can take out less from one of the others to offset it. However, these amounts should be under your control, not the fund’s control.