What Should I Do With My RMD If I Don't Need It?
Although the large majority of Americans end up spending their IRA's Required Minimum Distribution (RMD) each year, some of our clients want to know what to do with the amount if they don't need it right now. We have some ideas:
o You have to take it out of the account, that's not negotiable. The IRS imposes a 50% penalty of the amount not removed each year. Even if you don't need the money, failing to meet your RMD is a bad idea.
o Qualified Charitable Distributions count. Has to go to a recognized charity, and be processed as a check from the IRA. For those over age 70.5 years old, this is the most tax-efficient way to save to charity. For our clients, we provide them a checkbook that is to be used only for charitable contributions. You can then write a check, and everything will be processed to count towards your RMD and not cause any additional tax burden.
o Invest in taxable brokerage account, there's no rule that you have to spend the money! While this will require some taxes to be paid, a large majority of your withdrawal can then be reinvested and grow in a taxable brokerage account where it will be subject to much less in taxes later.
o Withhold entire amount to pay taxes for Roth CVR. This is an alternative idea that has to be done correctly, but can be a powerful way to get more Roth savings. If you know that your RMDs will regularly not be needed in the future, developing a Roth conversion plan may be very beneficial to reduce future tax burden from your RMDs.