Can you use dividend distributions from an IRA to satisfy an RMD?
Is it acceptable to use dividend distributions from an IRA to satisfy an RMD?
Yes you can.
Any distribution from an IRA account will count towards satisfying your annual Required Minimum Distribution, including dividends. Be sure to use this information from the IRS to calculate your annual RMD which considers your age and the prior year end (12/31) value of all applicable qualified retirement accounts.
If the total amount of dividend distributions you receive during the year does not surpass the total Required Minimum Distribution, you will need to withdraw additional funds from your qualified accounts to satisfy the requirement and avoid penalties.
Stephen Rischall, CRPC
Yes, this is certainly feasible. At Schwab, for example, you can fill out an IRA distribution form instructing the custodian to sweep dividends, capital gains, and interest to a taxable account. Any of these automatic distributions are counted toward your RMD. It's a fire and forget mechanism.
There is a downside, however. The tail can start wagging the dog. RMD calculations typically require a substantial fraction of your assets be distributed. To satisfy the RMD in its entirety, you might be tempted to skew your portfolio to securities that generate high income. This is not a good rationale for portfolio construction. Commissions on security sales are usually inexpensive if you shop around. Many custodians have no transaction fee funds that are pretty good. Secondly, it's typically a good idea to sell one or two positions a year to rebalance your portfolio. Selling US stocks after their big run up in 2016 might be a good strategy with your IRA. My preference is to execute RMDs once a year for clients and to use this occasion as an opportunity to rebalance through asset sales.
Maybe. The amount of your RMD is determined by your age and the balance in your IRA at the end of the previous year. To determine your RMD, you divide your balance by your life expectancy, determined by using the IRS Uniform Life Table.
If the amount of your dividend distribution exceeds the amount determined using the IRS tables, then you're fine. If not, you'll need to sell off assets to distribute cash or take your distributions in securities to equal or exceed the required amount.
Any money that is in an IRA can be transferred to a personal account as part of the RMD. It doesn't matter if the funds are from growth, interest, or from dividends. One may even transfer out a stock or mutual fund holding without selling the position in order to satisfy the RMD (the value would be at the previous nights closing price).