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What To Do If You Don’t Need Your RMD | Smart Change: Personal Finance

(Chuck Saletta)

Many retirees who have been strong guardians throughout their careers reach retirement and are pleasantly surprised at how little of their nest eggs they need to save their lives. Between them Falling costs in retirement and income from their Social Security and after-tax portfolios, some even discover they don’t even need to spend their required minimum distributions (RMDs).

Still, these RMDs are yours once you turn 72, regardless of whether you have to spend that money or not. absolute Get money from top quality retirement plans. While you can’t transfer these necessary distributions to another retirement account, you can use that money wisely even if you don’t need to spend it. These three approaches offer great strategies for what to do if you don’t need your RMD.

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no. 1: Give directly to charity

When you’re 70 and a half, you can do what’s known as a qualified charity. With this approach, you can donate up to $100,000 per year directly from your Traditional IRA to a charity. if done former If you receive your RMD for the year, the donation may cover the total amount you should receive as your RMD.

Qualified charitable distribution, as well as reducing the need to receive RMD never counts as income for retirement. This can help retirees reduce high taxes and mandatory costs otherwise the RMDs will persist.

One important thing to note, though, is that you could run into trouble if you make a Traditional IRA contribution and a qualified charity distribution in the same year. In essence, the qualifying portion of your charitable distribution is reduced by the amount of your Traditional IRA contribution. This may reduce the net tax benefit of the plan, but it’s still a good deal overall.

no. 2: Invest in after-tax accounts

even if you have to receive There is no rule that says you must make the Minimum Required Distribution from your retirement accounts. to spend once you take out the money. After paying your distribution taxes, the cash you receive can be deposited into a regular brokerage account with no added issues.

Even if you don’t need the money outright, investing this way can be an important estate planning tool. Inherited investments basically take a step It is based on the date the original owner died. In essence, if you buy $10,000 worth of stock in an after-tax account that was worth $50,000 at your death, your heirs would receive that stock as if they had paid $50,000.

In addition, the money you deposit in after-tax accounts stays with you for the rest of your life. If you realize you need money, you can tap it to spend it. You can use this if you decide to take your extended family on a big to-do list vacation.

no. 3: Use it to pay taxes on Roth IRA conversions

You must obtain your Required Minimum Distributions before making any Roth IRA conversions with your funds. However, once these distributions are received, you can convert any additional amount from your Traditional IRA into your Roth IRA. These conversions are taxable events. Using the money you have is necessary Subtracting it from your other retirement accounts to cover the taxes on your Roth IRA conversion can help you in several ways.

First, once your money is in your Roth IRA, it is never subject to a required distribution in your lifetime. These necessary distributions can become quite large later in life as the percentage of your account balance increases as you age. Early in retirement, you can keep later life distributions low by converting more of your Traditional retirement account balance into a Roth IRA.

Then, once you’ve had money in a Roth IRA for at least five years and you’ve turned 59 and a half, you can receive completely tax-free distributions from your Roth IRA at any time for any reason. This offers an unparalleled level of flexibility in how you spend your money should you eventually need or want to touch it.

Additionally, after you pass away, your heirs can withdraw fully tax-free money from an inherited Roth IRA as long as the account has been open for at least five years. Your heirs in general absolute dump an inherited Roth IRA within 10 yearsWhile there are some exceptions for situations such as spouses who are sole beneficiaries of a Roth IRA account.

Use these approaches to effectively manage your retirement nest egg

If you’re at a point where you don’t need your RMDs to make a living in retirement, overall, you’re doing pretty well. Congratulations on building a great foundation. Think of these approaches as icing on an already well-baked cake.

Still, remember that using these approaches effectively helps you plan ahead. In some cases, the order in how you solve things is important to ensure your success. Additionally, paying attention to the relevant tax years and your age at the time will help you always stay on the right side of the rules regarding RMDs. So create your plan now and develop your ability to effectively manage your retirement fund in line with your personal priorities.

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Chuck Saletta does not hold a position in any of the aforementioned stocks. Motley Fool has no positions in any of the stocks mentioned. A Motley Fool disclosure policy.

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