4 Smart Uses for RMDs

Retired? Taking Required Minimum Distributions now or soon to be? Then this is for you.

What are Required Minimum Distributions or RMDs?

At 70 1/2 you must take distributions from your IRA according to your life expectancy and the value of your account. Every year many of my retired clients try to figure out what to do with their Required Minimum Distributions.

Here are a few options to consider:

Fund your grandchildren's college accounts. In some states you can actually get a deduction for funding a college account.. Even if you don't get a current year deduction for funding the account, you'll be helping them fund an expensive goal.

Pay for Long Term Care insurance. About 50% of us are going to spend some time in a nursing home. Why not use these mandatory distributions to pay for the insurance?

Give to Charity. The RMD actually adds to your tax burden every year. Why not offset it by giving to charity? You can help a great cause and get a deduction!

Go tax-free. Even though your RMD is taxable, that doesn't mean you can't reinvest it back into tax-free municipal bonds. Muni bonds interest is federally tax-free and often state tax-free.

The Diligent Advisor Point
I think one of the main reasons my clients get stressed about RMDs is because they are taxable. Keep in mind you can have state and federal taxes withheld at the time of the distribution. That way you don't have to cough it up at tax time.

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