3 Strategies for the Required Minimum Distribution (RMD) You Don’t Need

Starting at age 72 people with an IRA are required to take distributions from their accounts – even if they don’t need the income. Many retirees are surprised at how large their RMDs are!

Required Minimum Distribution 2022: What if I don’t want it?

For example, an 85 year old with a $1M IRA has to take a $62,500 RMD. Assuming a couple is the same age with the same account values, that’s $125,000 in RMDs that are 100% taxable!

Sometimes people don’t need the income at all, or it’s just a little more than necessary for their lifestyle. So what’s the best thing to do with a RMD you don’t need?

In this video we break down three of the most popular strategies we recommend to clients:

  1. Qualified Charitable Distributions
  2. Reinvesting in taxable investment accounts
  3. Taking as income to pay down debt, expenses, and save for a rainy day

Show Notes:

Full transcript:


Anthony Saffer & Alex Okugawa

Full Transcript:

Anthony Saffer 0:00
Required Minimum Distribution 2022: What should you do with required minimum distribution that you don’t need? Today we’re breaking down three of the most popular strategies that we discuss with clients. Stay tuned.

Hey, it’s Anthony and Alex from one degree advisors. All right, Alex, today we’re discussing RMDs that you don’t need.

Alex Okugawa 0:21
So starting at age 72, people with an IRA for in this example, are required to take distributions from their accounts, even if they don’t need the income. And so I find many retirees are like really surprised at how large there RMDs are, especially as they get older. So for example, at age 72, you have to take out 3.65% of your account, which doesn’t sound too bad, you might need that for your lifestyle. At age 80, you have to take out 4.96%. And at age 90, you have to take out 8.2%. Again, these are forced distributions, if you don’t take them out, there’s a heaping penalty for you. And again, a lot of people, they may not need the RMD. So let’s break down three of our most popular strategies.

Anthony Saffer 1:07
So number one is the qualified charitable distribution or QCD. And we’ve done a video on QCDs before we’ll post that in the comments if you need a quick refresher on that.

Alex Okugawa 1:16
So again, we’re gonna put this up on the screen so people can follow along. But let’s just give an example of someone who has, let’s say, a $60,000, RMD, right, nice flat number. So option #1 You can just have that paid out to you, right, have the $60,000 paid out to you. Of course, it’s 100% taxable. But of course, in today’s video, we’re talking about folks that may not need that full distribution. So an alternative is, well, maybe I do need some of it right to live my lifestyle. So let’s say I have $40,000 sent out to me. So that distribution I have sent to me in this case is 100% taxable, but let’s say I don’t need $20,000 of that, well, I can send $20,000 directly to a charity, a qualified 501(c)3 charity. And the beautiful part is I pay zero tax on that distribution. I don’t pay tax, the charity doesn’t pay tax, it’s a win-win for both parties.

Anthony Saffer 2:10
Yeah, it doesn’t even show up as taxable income at all, it’s a very tax efficient way to give. Alright, so number two is to reinvest the money in a taxable account.

Alex Okugawa 2:19
Yeah, this is another strategy to move your unneeded RMD into basically a separate taxable accounts. Now, the beautiful thing about taxable accounts is they have no contribution limits. They have no withdrawal limits, or withdrawal penalties. So very, very flexible, and can be used by people in retirement who don’t even have incomes. So again, let’s put this up on the screen so people can follow along. Again, we’re using the same example as before an RMD of $60,000. And in this case, let’s say you need $40,000 for your lifestyle, so you send $40,000 out for you. But you don’t need $20,000 of that for your lifestyle, right. But you know what, maybe you’re thinking about health care costs in the future, right, you’re a little bit concerned about the potential for long term care events. So you want to have that money to continue to grow and compound over the long term. You don’t just want it sitting in cash, well, what folks can do is they can put $20,000 in a taxable brokerage account and have that money invested to continue to grow for the future. Again, a great strategy to can you continue to compound your wealth, rather than taking it all out and then having it just sit in cash, if you don’t need it.

Anthony Saffer 3:25
In that, in that strategy, the money is still taxable as income, but you are saving it for later and then can use it and you’ve got time you got it. Alright, so the last thing is taking it as income using it for something productive.

Alex Okugawa 3:37
Yeah. So if you don’t need the money for, you know, for the future, to continue to compound and grow. If you’re not necessarily charitably inclined, or if you’ve already met your charitable goals for the year, maybe you don’t use the QCD strategy, honestly, then what you can look at doing is either paying down some debt, if you have it paying down or pre paying some expenses. The alternative is to you know, just build up your cash reserves, build up your rainy day fund for the future. So there’s a lot of different tools that you have at your disposal. Again, the Big Three is give it to charity, invest in a taxable account, or just kind of build up your rainy day fund. Those are the three most popular things that we do for folks, and a lot of people are unaware that that the RMD tables actually changed in 2022. And we recently made a video which people can click on above and that’ll take them right to a recent video we made.

Anthony Saffer 4:25
Now let us know what you think. What do you do with RMDs that you don’t need? Leave your thoughts in the comments below as well as suggestions for any future videos. And if you liked this content, please like and subscribe for more. Thanks for watching.

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