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Opinion: What is the best way to get RMD from retirement? Experts evaluate 3 options.


I’m a retired educator and I just turned 72. I’m about to start receiving my required minimum distributions. I don’t need the full amount, but I think I have to get it anyway. I don’t know when is the best time to get an RMD. Is it best to take it all at once at the end of the year? Or should I take it monthly throughout the year?

caro

Dear Carol,

Congratulations on your successful teaching career and for saving enough that you don’t need the entire required minimum distribution (RMD) to survive right now. But the government wants its taxes, so you have to get rid of Minimum distribution required Follow the formula and pay your annual income tax when you turn 72.

If you don’t take your RMD in time, usually by December 31st, you will face a penalty of 50% on the amount missing and that penalty can be quite high as you can take tens of thousands of dollars . The amount you have to take each year is about 4% of the total account at the start, based on the IRS . formula consider your age and amount of assets.

Financial advisor Kenneth Walzer there was a customer who forgot to get RMD on an account he inherited for years in a row, and when he figured it out and fixed it, the amount owed was over $100,000.

That’s why at the end of the year you’ll see a lot of reminders about getting your RMD. But that doesn’t mean it’s the best time. In fact, it’s probably the worst time of the year, and especially bad if you’re in danger of forgetting.

The best time for you will depend on how much money and what you need it for. There are pros and cons to each, and financial advisors typically see their clients do it in one of three ways:

December

When financial advisors say year-end to think about RMD, they don’t mean December 31; they mean early december. Either way, that’s when a lot of advisors review accounts, consider rebalancing client portfolios, and look at the final loss of tax collection, which is when you sell positions. losses to cover capital gains.

This year, some retirees may want to wait as long as possible before selling anything in their account, because both stocks
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and bonds
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is decreasing significantly. That may sound like an expert backing at the end of the year, but for RMD it really doesn’t matter.

Because the amount you have to take is based on the balance at the end of December 31 of the previous year, the market trend this year is unchanged. You already have the money you need to withdraw to cash or cash equivalents, and leaving it in your account until maturity or moving it sooner makes little difference.

Amy Miller, a certified financial planner and senior vice president of richness, based in West Hartford, Conn. “If you need cash, it will be cash. You’re giving up the potential to profit from the market, but I think most people feel better with cash and they don’t need to touch it if the market goes down.”

Monthly

Since you know your RMD amount from the start, you can easily break it down into 12 equal distributions that can automatically be deposited into your checking account.

“It helps you budget, and you’ll get it just like you would get Social Security or a pension,” says Miller.

The big advantage of monthly distributions is that you won’t be tempted by a one-time tens of thousands of dollars. If you encounter a large expense that you cannot cover with your usual withdrawal, you can always arrange an additional distribution, say Beata Dragovicsa certified financial planner and founder of Freedom Trail Financial based in Boston.

The only real drawback to monthly withdrawals is that if you’re investing or donating that amount, it’s more convenient if you have it all at once.

January

The ideal time to withdraw an RMD might just be January for one important reason: It means you don’t run the risk of being forgotten.

“It’s a really important thing. That’s a big reason to make sure those distributions happen,” says Isaac Bradleydirector of financial planning at Homrich Berg, an investment firm based in Atlanta.

Another important reason to withdraw money in January is that it makes it easier for your heirs should you pass away during the year. It can be a nightmare if you pass away and you haven’t taken your RMD for the year, Miller said. Towards the end of the year, the paperwork for your loved ones gets worse.

That potential donkey makes most people think of December rather than January they don’t want to get out of their accounts until the last possible moment, to catch any uptrend in the market, which is especially true this year.

But that assumes that the money you are withdrawing is fully invested until you withdraw it, and then converted to cash. It really should be the opposite. The money you know you need to withdraw should be in the form of cash, and then when you withdraw it, you should reinvest it if you’re not going to spend it soon. It is even possible to transfer in kind and not even change the allocation but just transfer to a taxable account.

“One difference is that you may want to invest in tax-advantaged investments, such as municipal bonds, outside of qualified accounts,” says Bradley.

Have a question about the investment mechanism, how it fits into your overall financial plan, and what strategies can help you get the most out of your money? you can write to me at [email protected].

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