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Other Uses for RMDs

Other Uses for Required Minimum Distributions

Effectively using RMDs as part of your retirement income plan can help you reach your financial, philanthropic, and estate planning goals. What planned uses do you have for your RMDs? Depending on your goals, you may want to consider some of the following ideas.

For You

You may have IRA assets already earmarked for travel, entertainment, or home improvements. But, with life expectancies increasing and the cost of living continuing to rise, you may find you need to use your RMDs to help pay for basic living expenses, lifestyle needs and chronic medical care, or to fund an investment that allows for a stream of guaranteed income payments.

For Your Family

Don't need your RMDs for basic expenses or protection needs? Consider the following alternatives:

  • Fund a life insurance policy for your family's future protection.
    Life insurance can help your heirs maintain their standard of living should you pass away, and may also provide benefits during your lifetime should you become chronically ill, disabled, or live longer than anticipated.
  • Help fund a loved one's higher-education with a 529 plan.
    Invest your RMDs in a 529 college savings plan for your child or grandchild. You'll benefit from tax-deferred growth and potentially tax-free withdrawals, if used for qualified higher education expenses.
  • Invest in a tax-deferred investment.
    Contribute your RMD to a tax-deferred investment to benefit from tax-deferred growth and compounding. If structured correctly, an annuity can help provide an income stream for you, a spouse, and possibly even another generation of your family.

For Others

Leave a legacy to your family by funding a charitable giving option, such as a Donor Advised Fund (DAF), or private foundation. This can be a particularly effective way to meet your philanthropic goals, instill your values in younger generations of your family, and create a lasting legacy. You may also simultaneously benefit from an income tax, capital gains and estate tax perspective.

Another option for charitable giving is known as a "qualified charitable distribution" (QCD)1, an opportunity due to expire at the end of 2011. Currently, the law allows those over 70½ to transfer up to $100,000 (per donor, per year) income-tax free from an IRA to a qualified charity which can count toward your RMD.

No RMD with a Roth IRA

If you've already developed an income plan with your financial advisor, have several years before RMDs would be required, and you don't anticipate needing the income from your IRA, consider converting your Traditional IRA or qualified retirement plan (or a portion of those assets), to a Roth IRA (link to this content again).2

Because there's no requirement to take RMDs from a Roth IRA, you can leave your assets invested and potentially accumulate more over time for distribution to your heirs. There are tax considerations associated with completing a Roth IRA conversion, so be sure to speak with your financial advisor and tax professional about whether this may be the right solution for you.

Talk to your financial advisor

You can use the RMDs from your IRA in a multitude of ways - for your own enjoyment and retirement needs, to benefit a family member, or support a charitable organization. Just remember, you must take RMDs or face a 50% penalty from the IRS. Therefore, it's crucial to discuss all of your IRAs with your financial advisor and tax professional to ensure you are taking the correct RMD amount, and from the appropriate account(s).

Retirement Planning

Financial planning can be complex. We provide information and strategies to help you navigate the world of investing.

Learn more >

1Does not include Donor Advised Funds, private foundations or support organizations.

2You cannot convert your RMD to a Roth IRA.

This information is written in connection with the promotion or marketing of the matter(s) addressed in this material.  The information cannot be used or relied upon for the purpose of avoiding IRS penalties.  These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, you should consult your own tax or legal counsel for advice.

Life insurance policies contain fees and expenses, including cost of insurance, administrative fees, premium loads, surrender charges and other charges or fees that will impact policy values.

Taxable distributions (including certain deemed distributions) are subject to ordinary income tax, and if made prior to age 59½, may also be subject to a 10% federal income tax penalty.