I Don’t Need Them ‘Dumped Into My Checking Account.’ What Can I Do With RMDs?

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.)

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Try Converting to a Roth

As you approach RMD age, consider the benefits of strategically converting dollars from your traditional IRA to a Roth.

Roth accounts are not subject to RMDs, and executing a Roth conversion may allow you to both reduce future taxes and minimize or eliminate mandated distributions, giving you more control of that money in the future. Again, there will be a tax consequence to these conversions, so plan accordingly. (If you have additional questions about the tax repercussions of investing decisions, this tool can help match you with potential advisors.)

Bottom Line

There is a range of ways to approach RMDs that don’t involve dumping them in a checking account. But some of these approaches may have implications for your tax bill, investment strategy and retirement income. Consider working with a knowledgeable financial advisor if you’re unsure of how to proceed.

Tips for Finding a Financial Advisor

• Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.

Susannah Snider, CFP® is SmartAsset’s financial planning columnist, and answers reader questions on personal finance topics. Got a question you’d like answered? Email [email protected] and your question may be answered in a future column.

Please note that Susannah is not a participant in the SmartAdvisor Match platform and is an employee of SmartAsset.

Photo credit: ©Jen Barker Worley, ©iStock.com/Halfpoint, ©iStock.com/Tom Merton

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