Dear Liz: I have an IRA invested in stocks, bonds and Treasury bonds. I’m 60 now and am hoping to retire in a few years. When I stop work and start pulling money from my IRA, can I withdraw a security or Treasury bond? Or must I first sell the security or Treasury bond, and then withdraw cash? I ask because I’ve recently purchased 30-year Treasury bonds (as well as Treasury Inflation-Protected Securities, or TIPS). Once required minimum distributions kick in, I’d prefer not to sell a Treasury bond or TIP, if I don’t have to.
Answer: First, you should know that you have several years before your first required minimum distributions will be due. Because you were born after 1959, the age at which you’re required to start taking minimum distributions from most retirement accounts is 75. (The RMD age used to be 72, but it’s currently 73 for those born between 1951 and 1959 and 75 for those born in 1960 and later.) You can take penalty-free distributions from retirement accounts as early as age 59½, but the increase in RMD age can be advantageous for good savers who don’t need the money and want to allow their tax-deferred retirement funds to continue growing.
Most people take their required distributions in cash, but you’re allowed to take them “in kind” — in other words, you can transfer your stocks and other investments from your retirement account to a taxable brokerage account.
There’s no tax advantage to in-kind transfers and they can be tricky because the value of investments can change day to day, unlike cash, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. If the investments’ value on the day of distribution is less than your RMD, you’ll need to make up the difference in cash to avoid penalties.
My drinking partner turns 73 the end of January. He has already set up the mandatory IRS withdrawals starting next January. He just received a letter from the IRS stating he isn’t drawing enough money out monthly. So they will start instructing his deferred comp to send him a check in the mail every month to his checking account. He set up another account strictly for the mandatory withdrawals. He spoke with 3-4 people at IRS and they said nothing they can do. He asked if they could send it to the second account. They said no. So starting late January he will be receiving a check every month in his checking account from them for $.08 cents. I told him to stop fighting it because it would cost more to write and mail a check than the $.08 he will receive. Our government at work.