12-22-2013, 02:00 PM
I've been working on an SA article about the Required Minimum Distribution (RMD) in an IRA and strategies to maximize after tax income and to minimize depleting your principal. My first version was rejected because it was not "actionable and useful to the reader". Yet there was incredible interest in the comment stream for Bob Wells article on high income for those in retirement (too busy to look up the link right now).
In my first iteration, I used a generic portfolio value and various growth rates (yield + capital gains) and found that unless you can maintain a consistent portfolio value growth rate over 10%, it won't be long, once you reach age 70.5, before the RMD will exceed dividend returns and you need to withdraw capital to meet the requirements. In other words, you can't just withdraw and live off the dividends. You need to touch your capital also. My "at first glance" instinct is I need to start recharacterizing some assets into a Roth to avoid an onerous income tax bill in retirement. There's no way I'd be able to afford the taxes moving the bulk of my IRA to a Roth in only a few years now. My marginal tax rate would move up to the 28% bracket in short order.
For the second iteration, I've developed a more detailed, real-life portfolio but it has been much harder to model dividend growth and capital growth along with the RMD requirements in a spreadsheet simultaneously. There's just so many moving parts. My goal was not only to come up with some reasonable strategy but to build a spreadsheet anyone could download and enter their own portfolio just to see where the numbers are going but about now I've reached writer's block.
I'm not sure what insight I'm looking for yet but would appreciate any of your thoughts.
In my first iteration, I used a generic portfolio value and various growth rates (yield + capital gains) and found that unless you can maintain a consistent portfolio value growth rate over 10%, it won't be long, once you reach age 70.5, before the RMD will exceed dividend returns and you need to withdraw capital to meet the requirements. In other words, you can't just withdraw and live off the dividends. You need to touch your capital also. My "at first glance" instinct is I need to start recharacterizing some assets into a Roth to avoid an onerous income tax bill in retirement. There's no way I'd be able to afford the taxes moving the bulk of my IRA to a Roth in only a few years now. My marginal tax rate would move up to the 28% bracket in short order.
For the second iteration, I've developed a more detailed, real-life portfolio but it has been much harder to model dividend growth and capital growth along with the RMD requirements in a spreadsheet simultaneously. There's just so many moving parts. My goal was not only to come up with some reasonable strategy but to build a spreadsheet anyone could download and enter their own portfolio just to see where the numbers are going but about now I've reached writer's block.
I'm not sure what insight I'm looking for yet but would appreciate any of your thoughts.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan