The recent thread about TIPS ladders and RMD withdrawals made me question the manner in which I was modeling a recently built TIPS ladder in PRC.
To model the ladder in PRC, I removed the money from my IRA account balance that was used to purchase the ladder, and then added an annuity that generated income each year for the duration of the ladder. I set the annual increase in the (nominal) annuity payout equal to my assumed inflation rate given the real return offered by TIPS.
I think this approach will mess up RMD calculations because the TIPS don't show up as retirement assets in PRC.
What's the right way to model TIPS ladders in PRC? (I did search through the manual and forum posts.)
Thanks in advance.
@malik182 If the TIPS are actually held within the tax-deferred account, my suggestion would be to make TIPS an asset class to which some portion of your tax-deferred account is allocated.
Stuart
@smatthews51 Stuart, appreciate the quick reply. The TIPS ladder is in a separate IRA account.
I decided to calculate what RMDs would be for this IRA account and it looks like the RMDs are very close in magnitude to the income generated by the ladder. So if the ladder income is withdrawn each year (or at least moved into a taxable account), then modeling the ladder as a (taxable) annuity doesn't seem to have any drawbacks other than a small error in RMD calculations. Does that sound right?
I do what Stuart suggested above. Under Asset Allocation for the Tax Deferred, I have a TIPS asset class and whatever percentage of the IRA TIPS is, I use that percentage. I set my ROR to 2% because that is what my ladder is. For Roth Conversions of other funds in the IRA, I play around with the tax bracket to limit the amount converted since I don't want to convert any of TIPS that have not matured yet.
@malik182 As long as that annuity income is taxed as ordinary income then, yes, that sounds right to me.
Stuart
@kiwibobs Thanks for the detailed information, Robert. I find the annuity approach easier to work with and wrap my head around. And it works out in my case b/c the income generated by the TIPS ladder is pretty close to estimated RMDs for the IRA account in which the ladder is housed.
I tried to take the approach where I created a TIPS asset class and assigned a percentage of my TD accounts to it (100% in my case). To model the fixed income from the ladder, I created an entry in the Scheduled Withdrawals Table with a fixed amount each year for 30 years. I also created historical data for my TIPS asset class. Finally, I set my withdrawal order with my TD account listed last to avoid withdrawals beyond the fixed, scheduled withdrawals.
So far so good. The problem I'm seeing is that at age 74 Pralana is adding an RMD in addition to the scheduled withdrawal, even though the scheduled withdrawal is already more than enough to cover the RMD. The result is that my TD account runs out of money before my "ladder" can fully pay out.
Is there something that I can do differently to model the desired behavior?
There was an earlier thread about this, see
My imperfect fix was to only have scheduled withdrawals for the years before RMDs kicked in. After that point, the RMD withdrawals effectively include the income generated by the TIPS ladder since, in my case, the annual RMDs exceed the income generated by the TIPS ladder.
Hoping that, as indicated by Stuart in the thread linked above, the online version of PRC will treat scheduled withdrawals during RMD years as counting towards RMDs. That would allow for better modeling of TIPS ladders in PRC.
Thanks for the response. Modeling as an annuity for now as you suggested above.
