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I am approaching the time when I’ll take required minimum distributions (RMDs) from my individual retirement account (IRA). I am in a quandary about what I can do with this anticipated largesse of cash. I do not necessarily need the money dumped into my checking account. – Tommy
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What You Can Do With Your RMDs
Retirees who don’t need the cash from required minimum distributions (RMDs) aren’t required to dump it directly into a checking account. Fortunately, a range of options exists that allows the RMDs to work more effectively for you.
Keep in mind that how you handle your RMDs may come with tax consequences, so it’s important to keep an eye out for those repercussions.
Here’s what to do with RMDs when you don’t need the cash.
Consider an In-Kind Distribution
An in-kind distribution allows you to transfer or withdraw the assets from your account while maintaining their invested status, rather than cashing them out.
The benefit of distributing assets this way is that your money will stay invested in a stock, exchange-traded fund, mutual fund or other investment. That may be particularly beneficial if you’ve experienced losses recently and would like to wait to see your investments recover before cashing them in.
One downside is that you’ll still need to be able to cover the tax bill that accompanies the distribution. (If you have additional questions about the tax repercussions of investing decisions, this tool can help match you with potential advisors.)
Opt for a QCD
A qualified charitable distribution (QCD) allows taxpayers to transfer assets directly to a charity, bypassing the need to pay taxes on the distribution.
QCDs are an option for folks who truly don’t need RMD money to pay for living expenses and would prefer to use it to fund charitable causes.
Additionally, strategically utilizing QCDs can result in other important retirement benefits. They remove money from the accountholder’s taxable income, which can reduce Medicare premiums. Plus, folks who utilize this strategy before RMD age (they become available for individuals who are 70 ½ and older) can reduce the value of their overall tax-advantaged retirement account, minimizing RMDs in the future. (If you have additional questions about investing or retirement, this tool can help match you with potential advisors.)
Try Converting to a Roth
As you approach RMD age, consider the benefits of strategically converting dollars from your traditional IRA to a Roth.
Roth accounts are not subject to RMDs, and executing a Roth conversion may allow you to both reduce future taxes and minimize or eliminate mandated distributions, giving you more control of that money in the future. Again, there will be a tax consequence to these conversions, so plan accordingly. (If you have additional questions about the tax repercussions of investing decisions, this tool can help match you with potential advisors.)
As you’re making plans for your own RMDs, it’s important to estimate how much you’ll receive and when. There are tools available that can help you do just that. Estimate your required minimum distributions in seconds by trying the RMD Calculator below now.
Required Minimum Distribution (RMD) Calculator
Estimate your next RMD using your age, balance and expected returns.
RMD Amount for IRA(s)
RMD Amount for 401(k) #1
RMD Amount for 401(k) #2
About This Calculator
This calculator estimates RMDs by dividing the user's prior year's Dec. 31 account balance by the IRS Distribution Period based on their age. Users can enter their birth year, prior-year balances and an expected annual return to estimate the timing and amount of future RMDs.
For IRAs (excluding Roth IRAs), users may combine balances and take the total RMD from one or more accounts. For 401(k)s and similar workplace plans*, RMDs must be calculated and taken separately from each account, so balances should be entered individually.
*The IRS allows those with multiple 403(b) accounts to aggregate their balances and split their RMDs across these accounts.
Assumptions
This calculator assumes users have an RMD age of either 73 or 75. Users born between 1951 and 1959 are required to take their first RMD by April 1 of the year following their 73rd birthday. Users born in 1960 and later must take their first RMD by April 1 of the year following their 75th birthday.
This calculator uses the IRS Uniform Lifetime Table to estimate RMDs. This table generally applies to account owners age 73 or older whose spouse is either less than 10 years younger or not their sole primary beneficiary.
However, if a user's spouse is more than 10 years younger and is their sole primary beneficiary, the IRS Joint and Last Survivor Expectancy Table must be used instead. Likewise, if the user is the beneficiary of an inherited IRA or retirement account, RMDs must be calculated using the IRS Single Life Expectancy Table. In these cases, users will need to calculate their RMD manually or consult a finance professional.
For users already required to take an RMD for the current year, the calculator uses their account balance as of December 31 of the previous year to compute the RMD. For users who haven't yet reached RMD age, the calculator applies their expected annual rate of return to that same prior-year-end balance to project future balances, which are then used to estimate RMDs.
This RMD calculator uses the IRS Uniform Lifetime Table, but certain users may need to use a different IRS table depending on their beneficiary designation or marital status. It's the user's responsibility to confirm which table applies to their situation, and tables may be subject to change.
Actual results may vary based on individual circumstances, future account performance and changes in tax laws or IRS regulations. Estimates provided by this calculator do not guarantee future distribution amounts or account balances. Past performance is not indicative of future results.
SmartAsset.com does not provide legal, tax, accounting or financial advice (except for referring users to third-party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). Articles, opinions and tools are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. Users should consult their accountant, tax advisor or legal professional to address their particular situation.
Bottom Line
There is a range of ways to approach RMDs that don’t involve dumping them in a checking account. But some of these approaches may have implications for your tax bill, investment strategy and retirement income. It’s important to think through all of your options and how it might impact your financial situation. If you’re unsure, consider working with a knowledgeable financial advisor if you’re unsure of how to proceed.
Tips for Finding a Financial Advisor
- Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
Susannah Snider, CFP® was a SmartAsset financial planning columnist, and answered reader questions on personal finance topics. Please note that Susannah is not a participant in the SmartAsset AMP platform and was an employee of SmartAsset.
Photo credit: ©Jen Barker Worley, ©iStock.com/Halfpoint, ©iStock.com/Tom Merton