What are my options for RMDs? Can I reinvest?

Plan ahead! If you don’t need an RMD, can you reinvest in a Roth, pay taxes, or give that money away efficiently? You have several options for the proceeds for your RMDs. The sooner you start planning how to use that money, the better.

The IRS does not allow you to keep money in pre-tax accounts forever. When you’re eventually required to take required minimum distributions (RMDs), you must move funds to a taxable account (or take other steps, like giving the money directly to a tax-qualified charity).

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So, what are some of your options?

You can reinvest your RMD in a taxable account, which is what I see most clients do. The funds are often earmarked for long-term growth, so you can continue investing at whatever risk level is appropriate for you. You can even take an RMD in-kind (without selling your holdings) in some cases.

Alternatively, you might use RMDs to pay taxes. That could be helpful whether you’re doing Roth conversions or you just need to get payments to the IRS.

If you’re charitably minded, you could give your RMD directly to a tax-qualified charity. By sending the funds directly from your IRA to the charitable organization, you can potentially prevent the income from being included in your taxable income. As a result, both you and the charity might come out ahead.

You can also just put the money in your bank account and blend it in with your other short-term funds.

Other options may exist, and it’s critical to review your situation and your choices with a tax professional carefully before you take any action. This video does not sufficiently cover every aspect you need to consider—it’s just food for thought to get you started.

More on this topic:

CHAPTERS:
00:00 What Can You Do With RMDs?
00:43 RMD Basics and Pitfalls
02:34 Reinvest Your RMD
05:45 Pay Some Taxes
07:57 Donate RMD to Charity
09:50 Put it In the Bank
10:23 How to Manage RMDs

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Justin Pritchard, CFP® is a fee-only fiduciary advisor who can work with clients in Colorado and most other states.

IMPORTANT:
It's impossible to cover everything you need to know in a video like this. The only thing that's certain is that you need more information than this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a result, you need to speak with your own tax, legal, and financial professional who is familiar with your details. This video is not a substitute for individualized, personal advice. Please verify with your plan administrator when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. “Likes” should not be considered a positive reflection of the investment advisory services offered by Approach Financial, Inc. The Comments section contains opinions that are not the opinions of Approach Financial, Inc., and you should view all comments with skepticism. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.

[Bondbeer]

Taxable account is the way to go. In 40 years I have not paid $1 of capital gains. I do take my $3k of losses each year against ordinary income. The rest will go to my beneficiaries tax free with a step up of basis.

[garyxyz]

Thank you for the good advice. I am hoping to retire sooner than later.

[Bondbeer]

Great point on the withholding vs estimated taxes timing. I don’t usually get much from these videos but that was a nugget. I will never need any of my RMD so that helps.

[davidfolts]

Great content, Justin. Thanks for the time you spent creating it!

[PaulFrancis-yd]

Great information on Roth Conversions - Is calculator available on line?

[krishnadevulapalli]

I would like to add one more thing— use RMD’s to pay taxes for further Roth conversions!

[terryB]

Thank you Justin very good information

[georgehartigan]

Excellent presentation, easy to follow and understand

[TheJAXguy]

Nothing complicated. If you have the income you have to pay the taxes. I am in that situation. It sucks, but I have the income so I pay my taxes. I like the QLAC... You can do Roth conversions. But you still pay the taxes.

[jaycee]

Thanks for great content. Wondering if you can utilize a QCD with a RMD from a beneficiary IRA? I'm guessing no!

[MrSethmo]

If you take an in-kind distribution from a tax deferred retirement account into a taxable brokerage account, do you get a stepped up basis in the security? If not, you’re facing double taxation.