What to do with required withdrawals when you don’t need the money

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What to do with required withdrawals when you don’t need the money

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For some retirees, the deadline to take required withdrawals from retirement accounts is approaching — and those who don’t need the money have options, experts say.

Since 2023, most retirees must take required minimum distributions, or RMDs, from pre-tax retirement accounts starting at age 73.

April 1 after turning 73 is the first deadline, but retirees must take RMDs by Dec. 31 in subsequent years. 

The next step “always comes down to a client’s personal goals, financial and tax plan,” said certified financial planner Judy Brown, a principal at SC&H Group, which is headquartered in the Washington, D.C., and Baltimore metropolitan areas. She is also a certified public accountant. 

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Before deciding what to do with an RMD, it’s important to consider your short- and long-term priorities, including legacy goals, along with the tax impact, experts say.

Reinvest for ‘future tax savings’

If you’re eyeing long-term growth, you can reinvest after-tax RMD proceeds in a brokerage account and continue your current investing strategy, said Houston-based CFP Abrin Berkemeyer. 

Upon the ***** of those assets, you’ll get

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The strategy “could lead to future tax savings” if you use the money for a large expense later, such as health care, said Berkemeyer, who is a senior financial advisor with Goodman Financial. Brokerage assets could be subject to capital gains taxes, whereas pre-tax retirement funds incur regular income taxes.

ETFs are ‘incredibly tax efficient’

Some advisors use “in-kind transfers,” which move assets directly from your pre-tax retirement account to a brokerage, to stay invested in the same assets. You’ll still owe taxes on the distribution, but you maintain your original holdings. 

However, there are “good reasons” not to keep identical assets in a brokerage account, which incurs yearly taxes on earnings, said CFP Karen Van Voorhis, director of financial planning at Daniel J. Galli & Associates in Norwell, Massachusetts.

For example, you may want to shift holdings to

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Unlike mutual funds, most ETFs don’t distribute capital gains payouts, which can save brokerage account investors on annual taxes.

Secure a ‘guaranteed tax deduction’

If you’re philanthropic, another option could be a so-called

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For 2024, retirees age 70½ or older can donate up to $105,000, which satisfies yearly RMD requirements for those age 73 and above.

There’s no charitable deduction, but QCDs don’t count toward adjusted ****** income, meaning retirees don’t need to itemize tax breaks to claim it.

It’s effectively guaranteed tax deduction.

Karen Van Voorhis

Director of financial planning at Daniel J. Galli & Associates

“It’s effectively a guaranteed tax deduction,” Van Voorhis said.

More adjusted ****** income can trigger other tax issues, like higher income-related monthly adjustment amounts, or IRMAA, for 

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 and Part D premiums.

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