How to Handle Required Withdrawals From Retirement Accounts

[question everything]

(snip)

Remember: Required withdrawals from a retirement account in a calendar year are based on the account’s ending balance in the prior year. So, the size of your RMD in 2022 was set on Dec. 31, 2021. This year’s slide in the markets (assuming that your nest egg is invested in the markets) won’t change that. That said, the fact that markets have dropped in 2022—and the fact that the current balance in your savings account likely is lower than it was at the end of 2021—means you will end up withdrawing a larger percentage of your nest egg to meet your RMD. Yes, that sounds painful. But consider:

The IRS isn’t “making” you sell stocks. To begin, you can use cash in your IRA—if you have it—to satisfy your RMD, says Ed Slott, an IRA expert in in Rockville Centre, N.Y. Indeed, it’s a good idea to keep some cash in your retirement account for just this purpose. But let’s say all your IRA assets are invested in the markets. You don’t have to sell investments to meet your RMD; rather, the transaction can take place “in kind.” Mr. Slott offers this example:

If your RMD is $10,000, you can transfer—and that’s the key word: transfer—$10,000 of XYZ stock from your IRA to a taxable brokerage account. This transfer counts for your RMD. Yes, you will pay tax on the value of the stock (or stock fund) on the date the assets leave your IRA. And that value becomes your new “cost basis” if and when you sell the stock that’s now sitting in your taxable account. Again, the point is: You haven’t “sold” anything—and certainly not at today’s depressed prices. You still own the assets; you’re simply holding them outside your IRA instead of inside. (We should note here: RMD rules apply to inherited IRAs, as well.)

(snip)

Take a deep breath. With the required withdrawal now sitting in a non-IRA account, “buy and hold” can work in your favor, Mr. Slott says. For instance, if you hold the assets more than one year, any appreciation will be taxed, favorably, as long-term capital gains. By contrast, withdrawals from IRAs are taxed at ordinary income-tax rates.

And…if you hold the assets until death, there would be no tax, in most cases, on any appreciation. That’s because your heirs would receive a step-up in basis. Again, by contrast, IRAs don’t receive a step-up; when the account holder dies, the beneficiary of the IRA inherits the deceased owner’s basis without any adjustment.

More..

https://www.wsj.com/articles/ira-withdrawals-rmd-tips-11662146809 (subscription)

[progree]

1. I think we had a discussion about 2 years ago here -- some won't let you do that

I think Fidelity might be one of those where I couldn't in-kind transfer like that. How the heck would I find that discussion?

Anyway, one can sell, transfer, and buy the same stock or fund again 2 or 3 days later after it settles. I don't think that would be subject to the wash sale rule because the sale was in an IRA and so one didn't get any tax advantage from doing that.

And as the excerpt points out, the stock in the taxable account -- and its dividends if qualified -- are subject to the lower capital gains tax rate, and enjoy the step-up in basis on death, so its not a horrible catastrophic financial calamity.

Edited to add Anyway, I've been taking RMDs every year since 2005 or 2006 from my inherited IRA as required by law (one must take RMDs on inherited IRAs no matter what age one is). I did it via selling part of an equity fund, transferring the cash (the RMD, via clicking the "withdraw from IRA" button) to my taxable account, and then buying whatever I felt like buying a few days later, usually equities, and I never worried my pretty little head off about it because it wasn't a big deal.

Yeah, maybe once or twice there might have been a big up-move in the markets during those few days that I had this small amount out of the equity markets, so it cost me that. They say hardship builds character. And then you die.

Maybe a few times there was a big down-move too and it was a blessing (sell high buy low).

[question everything]

2. A few years ago Vanguard added a brokerage account to its mixture

As I was reading the story I wondered whether this was one reason.

Values of IRAs really soared in the past 5 - 6 years so transfer to that brokerage account would have been an option.

We don't own such an account; adding confusion and they just raised their fees for it.