Ways to Avoid Selling in a Down Market and Still Take Your Required Minimum Distribution

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Prepared by Susan Clifford, CPA – Principal

Are you taking required minimum distributions?  Does the fluctuating market have you worried about having to sell in a down market to satisfy the RMD requirements?  Here are a few suggestions to consider.

Instead of selling a stock that has declined in value, have the shares transferred into a taxable account.  The value on the date of the transfer applies towards your RMD, and you can hold the shares until they regain their value.  The basis of the stock will be the value on the date they were transferred out of your retirement account, not the cost when purchased inside the account.  So this is not a way to generate a capital loss – just a way to hold on to stocks, bonds, or mutual funds that you prefer not to sell.  And when you do sell, you will be taxed at capital gains rates on the increased value.

Create or increase your cash reserves inside your retirement account to cover next year’s (or the next few years’) RMD.  That way you can ride out any declines in the market rather than being forced to sell if you need the money from your RMD for living expenses. 

Remember to rebalance your retirement account portfolio if it has shifted away from your target or if you have experienced a change in your risk tolerance.  By selling assets that are too heavily weighted, you can purchase assets in the depressed sectors at bargain prices and realize the growth when the market rebounds.

If you have been thinking of converting some or all of your assets to a Roth IRA, do so now with your depressed assets.  You will pay tax on the lower value, and the gain, when it happens, will be tax-free.

While we would all prefer that the value of our retirement accounts continue to increase or at least hold steady, that is not a realistic expectation.  Positioning your account so you can ride out a market decline or taking advantage of the decline to convert to a Roth IRA or withdrawing securities rather than cash are all ways to manage your risk and minimize your realized losses.

Any tax advice (whether U.S. federal, state, local or otherwise) contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer (under the Internal Revenue Code, state tax law, local tax law or otherwise) or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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