If You're a Senior and Must Take RMD in your IRA, Should You just Take it All Out At Once?

Eva

Take it all out? No. The taxes will kill you.

tiescore

You'll pay tax as income on all that money all at once, and if you reinvest it you'll have to pay taxes on any dividends that your investments spit out. If your worried about a decline liquidate within the IRA and keep some in cash to cover your next RMD, and let any dividends just collect as cash for the next two years to help cover the next RMD... that should mostly cover any bear market we might have.

A Hunch

You haven't included whether you have any earned income or not. And if you are, what the source of that income is (traditional employment vs self employment). -- Before people thumbs down me, there are plenty of people over 70 who work "if you're forced to withdraw from an IRA x-amount each year and it could be a down year for stocks, that would suck." - the amount you are required to take out fluctuates with the market. On a down year, you are required to take out less because your investment is worth less. On an up year, you take out more because your investment is worth more (compare 2017 to 2018). - That said, when you are over age 70 most people don't have their IRA investment in income funds (high risk), so you won't see the market volatility that other investors could experience. Taking it all out and having a single tax hit? Would not be advised by most people. Taking it out and re-investing it, if you don't need the cash? Is a standard practice.

Anonymous

If you're going to take it all out in a lump sum, consider converting it to a Roth IRA. You still have the tax hit, but you'll pay zero tax in the future. There are no RMDs for Roth IRAs. If you take it out of a pre-tax IRA and invest in a taxable account, it's a taxable account. Roth is a tax-free account.

RICK

You could but you would owe taxes on the entire amount if its a taxable account. I did it because of market volatility,

danxp2

It's your money do what you want, but depending on the value of the retirement account you could be looking at up to 30-40 percent tax hit. A bummer in a down market to take a RMD but when you are over 70 you usually don't have the years to make up that loss, even if you can and do put it into a Roth account so future earnings are tax free.

Richard

I am a senior citizen who takes required IRA deductions, and I arrange to have the distributions go into their non-IRA money market fund. If I wanted to, I could also have distributions go into their non-IRA stock fund. Doing a lump-sum withdrawal might result in kicking you into a higher tax bracket.