What to do if you don’t need your RMD | Smart Change: Personal Finance

(Chuck Salita)

Many retirees who have been solid savers throughout their careers reach retirement and are pleasantly surprised at how little they actually need from their nest eggs to make ends meet. between them Lower costs in retirement and income from Social Security and their after-tax wallets, until some discover they don’t even need to spend required minimum distributions (RMDs).

However, regardless of whether you need to spend that money, once you reach 72, these people with generalized anxiety disorder mean you. He should Take money from most qualified retirement plans. Although you can’t transfer these required distributions to another retirement account, you can still make smart use of this money, even if you don’t need to spend it. These three approaches offer great strategies on what to do if you don’t need your RMD.

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#1: Give it directly to charity

Once you reach the age of 70 and a half, you can do what is known as a qualified charitable distribution. With this approach, you can donate up to $100,000 annually to a charity directly from your traditional IRA. if made before You take your RMD for the year, the donation can count towards the total amount you need as your RMD.

In addition to reducing the need to take RMD, qualified charitable distribution never It is considered income for the retiree. This can help retirees Reduce high taxes and mandatory costs which may be led by RMDs.

However, be aware that you can run into trouble if you make a traditional IRA contribution and an eligible charitable distribution in the same year. In essence, the qualifying portion of your charitable distribution reduces by the amount of your traditional IRA contribution. This can reduce the net tax benefits of the plan, but it’s still a good deal overall.

No. 2: Invest it in post-tax accounts

Although you must Takes Minimum distribution required from your retirement accounts, there is no rule that says you must spend money as soon as you take it out. After you pay your taxes on the distribution, the cash you get can be invested in a regular brokerage account without any issues attached.

Even if you don’t need the money directly, investing it this way can be an important estate planning tool. Investments transferred as inheritance Basically get escalated Based on the date of death of the original owner. In essence, if you purchased $10,000 of stock in an after-tax account that grew to $50,000 upon your death, your heirs receive that stock as if they paid $50,000 for it.

Plus, the money you invested in after-tax accounts remains available to you for the rest of your life. If you find that you need money, you can click on it to spend. If you decide you want to take your extended family on a big vacation, you can use it.

#3: Use it to Pay Taxes on Roth IRA Transfers

You must take the required minimum distributions before making any Roth IRA transfers with your money. However, once you take these distributions, you can transfer any additional amount you want from your traditional IRA to your Roth IRA. These transfers are taxable events. using the money you required Getting your other retirement accounts to cover taxes on your Roth IRA transfer can help you in many ways.

First, once your money is inside a Roth IRA, it will never be subject to the required distribution during your lifetime. These required distributions can become quite large later in life, as the percentage of your account balance subject to them increases as you age. By transferring more of your traditional retirement account balance to a Roth IRA earlier in your retirement, you can keep these later life distributions low.

Then, once you’ve had funds within a Roth IRA for at least five years and are over the age of 59 and a half, you can get distributions from your Roth IRA completely tax-free at any time for any reason. This provides an unparalleled level of flexibility in how you spend your money, should you eventually need or want to click through.

Additionally, after your death, your heirs can usually withdraw money from an inherited Roth IRA completely tax-free as long as the account has been open for at least five years. Note that your heirs in general He should Discharge an inherited Roth IRA within 10 yearsalthough there are some exceptions for cases such as spouses who are the sole beneficiary of a Roth IRA.

Use these techniques to effectively manage your retirement nest egg

If you’re in a place where you don’t need RMDs to make ends meet in retirement, then generally speaking, you’re good to go. Congratulations on having a great foundation. Consider these methods as a creamy sweetener on an already well-baked cake.

However, remember that to use these methods effectively, it is worth planning ahead. In some cases, ordering how things are handled is important to ensuring your success. Additionally, paying attention to the tax years involved and your age at that time will help ensure that you always stay on the right side of the rules associated with RMDs. So build your plan now, and improve your ability to effectively manage your retirement egg in line with your personal priorities.

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Chuck Salita He has no position in any of the mentioned shares. The Motley Fool does not have a position in any of the stocks mentioned. Motley Fool owns a file Disclosure Policy.