As the holiday season grows nearer by the day, there are many year-end items that some investors need to check off their list. As you digest the massive rise in interest rates, likely declines in your portfolio and persistent inflation felt everywhere from the grocery aisle to the gas pump, there’s another matter that may require your attention.
If you’re 72 years of age or older and have a retirement account like a 401(k) or an IRA, you’ll be required to take a distribution (RMD) from that account before the end of 2022. The IRS calculates the percentage that individuals must withdraw based upon their age and their account value. The problem with this year’s distribution is that the amount was based upon the December 31, 2021, value of those assets. With asset prices down 20 percent or more this year, the amount investors must withdraw is a now an even greater percentage of their overall account. It’s painful to think that you’ll be forced to sell some of your portfolio and realize losses to satisfy that government requirement for your income. But there is another option that you might want to consider!
Investors have the ability to journal assets from their IRA into an individual investment account without having to sell that security. For example, if your RMD for 2022 is $10,000, you can transfer $10,000 worth of stock or a mutual fund out of your IRA and meet that IRS requirement. The shares move from account to account “in-kind” without a transaction. You then continue to own the investment that hopefully will rebound and recover down the road.
This strategy isn’t always applicable in all seasons, but as this Christmas approaches it’s a good time to talk your advisor about this option to avoid selling assets at a time that you really shouldn’t.