(PUB) Investing 2015

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7 Tips for RMD Season Portfolio Matters | Christine Benz

Calculating RMD s, meanwhile, is a matter of dividing each of your RMD -subject account balances on Dec. 31 of the previous year by your life-expectancy factor. In the case of RMD s for this year, for example, you’d look back to your balance at the end of 2014 . In most instances—whether you’re single, your spouse is within 10 years of your own age, or you have someone other than your spouse as your sole benefi- ciary—you’d use the IRS ’ Uniform Lifetime table to calculate your RMD . But if your spouse is at least 10 years younger and also the sole beneficiary of your RMD -subject account, you’ll use the IRS ’ Joint Life and Last Survivor Expectancy table (Table II in IRS Publication 590 ), finding the intersection between your age and your younger spouse’s age. That results in a smaller payout than would be the case if you based your RMD on your life expectancy alone. It’s also worth noting that you don’t need to take RMD s from each and every IRA account, assuming you have multiple. As long as you take the right total from at least one of the accounts, you’ve met your distribution requirement. That allows you to take the RMD from the account(s) where it makes the most investment sense to do so. 2 | Let your year-end checkup drive what you sell. Before you actually pull the trigger on your RMD s, conduct a thorough year-end portfolio review, taking stock of your asset allocation and the fundamentals of your holdings, including valuations. Holdings that look unattractive on a bottom-up basis or that are simply consuming too large a share of your portfolio should be at the top of your list when determining what to sell to meet RMD s. That can serve the dual goal of improving your portfolio and satisfying the IRS ’ requirements. 3 | Tie RMDs in with bucketing. If you’re using the “bucket system” for retirement- portfolio planning, you can tie RMD s to your buckets in several ways. Because it’s a good idea to refill your cash bucket (bucket one) throughout the year, you can have income distributions from your IRA holdings sent directly into bucket one as they’re paid

Complaining about required minimum distribution from 401 (k)s might seem a little like grousing that the pool is too crowded in Florida during high season. It may be a nuisance, but in the scheme of things it’s a high-class problem to have. For the majority of retiree households, RMD s are a nonissue. They’re spending more than they’re required to from their IRA s, so they don’t need the IRS to tell them how much they must take out annually. (For better or for worse, there are no limits on the max- imum you can take out of your IRA s.) For affluent retirees, however, RMD s can be un- welcome, shrinking the amount of assets that can enjoy tax-deferred compounding while also potentially forcing higher tax bills in the years they take the distributions. There’s no single “ RMD season,” but many investors wait until year-end to take their distributions, perhaps to take advantage of a few extra months of tax-deferred compounding or perhaps because of inertia. With the deadline to take required minimum distributions fast approaching—Dec. 31 —here are some tips to bear in mind. 1 | Take the right amount at the right time. Calculating RMD s and taking them on time is fairly straightforward, but there are a few wrinkles to bear in mind. The first is one that only first-time RMD - ers need to bear in mind: Even though Dec. 31 is the usual RMD deadline and age 70 1 / 2 is burned into every IRA holder’s brain, the first RMD deadline is actually April 1 of the year following the year in which you turn 70 1 / 2 . So, if you turned 70 1 / 2 this past July, you wouldn’t need to take your first RMD until April 1 , 2016 . You’d then need to take an RMD again by Dec. 31 , 2016 —and by Dec. 31 in every year thereafter.