I am approaching the time when I’ll take required minimum distributions (RMDs) from my individual retirement account (IRA). I am in a quandary about what I can do with this anticipated largesse of cash. I do not necessarily need the money dumped into my checking account.
-Tommy
Retirees who don’t need the cash from required minimum distributions (RMDs) aren’t required to dump it directly into a checking account. Fortunately, a range of options exists that allows the RMDs to work more effectively for you.
Keep in mind that how you handle your RMDs may come with tax consequences, so it’s important to keep an eye out for those repercussions. Here’s what to do with RMDs when you don’t need the cash. (If you have additional questions about investing or retirement, this tool can help match you with potential advisors.)
Consider an In-Kind Distribution
An in-kind distribution allows you to transfer or withdraw the assets from your account while maintaining their invested status, rather than cashing them out.
The benefit of distributing assets this way is that your money will stay invested in a stock, exchange-traded fund, mutual fund or other investment. That may be particularly beneficial if you’ve experienced losses recently and would like to wait to see your investments recover before cashing them in.
One downside is that you’ll still need to be able to cover the tax bill that accompanies the distribution. (If you have additional questions about the tax repercussions of investing decisions, this tool can help match you with potential advisors.)
Opt for a QCD
A qualified charitable distribution (QCD) allows taxpayers to transfer assets directly to a charity, bypassing the need to pay taxes on the distribution.
QCDs are an option for folks who truly don’t need RMD money to pay for living expenses and would prefer to use it to fund charitable causes.
Additionally, strategically utilizing QCDs can result in other important retirement benefits. They remove money from the accountholder’s taxable income, which can reduce Medicare premiums. Plus, folks who utilize this strategy before RMD age (they become available for individuals who are 70 1/2 and older) can reduce the value of their overall tax-advantaged retirement account, minimizing RMDs in the future. (If you have additional questions about investing or retirement, this tool can help match you with potential advisors.)
Try Converting to a Roth
As you approach RMD age, consider the benefits of strategically converting dollars from your traditional IRA to a Roth.