If a retiree has sufficient assets and doesnít need to spend the required minimum distributions from their retirement plans, they might be frustrated by being forced to take them and incur the associated tax liability. There are ways, however, that they can make lemonade from a lemon. Here are several ideas from the professionals at HD Vest Financial Services:

  • Buy life insurance: Life insurance provides a potential tax-free death benefit to heirs, and lets the retiree, through leverage, possibly give those heirs more than they would wind up with by inheriting what remains of the IRA. This option is particularly attractive for those whose beneficiaries are in a higher tax bracket than themselves.
  • Purchase long-term-care insurance: Long- term-care insurance can provide clients a way to protect their assets should they need in-home or assisted nursing care. With the ever-growing cost of assisted living, it will be important for many clients to have this coverage.
  • Fund a 529 plan: This can be a great way to leave a legacy for children or grandchildren. If the retiree has an RMD that is more than the IRS annual gifting limit, using 529 plans allows them to gift five times the annual gifting limit in one year. Keep in mind that strategy can only be used once every five years.
  • Make a charitable gift using a donor-advised fund: Charitably inclined retirees can use their unwanted RMDs to give money to their favorite charity through a donor-advised fund. A donor-advised fund allows them to make a tax-deductible (up to 50% of adjusted gross income) contribution to the fund. The fund managers then manage the assets and make distributions to your charity of choice. The investments grow tax free, offering the potential to give more over time.
  • Use the RMD to pay the tax due on a Roth conversion: Roth IRAs do not have an RMD requirement. Retirees can use their current unwanted RMD to pay the taxes due upon converting their traditional IRA to a Roth. The amount converted would be subject to ordinary income tax, but once it is converted there would no longer be an RMD requirement.
  • Re-invest: There are worse things you can do than simply to re-invest unneeded RMDs in taxable accounts. If they are invested in individual securities and held for the long term, taxation of gains on those assets (assuming they do indeed gain in value) can be deferred for a long time.

HD Vest Financial Services is the holding company for the group of companies providing financial services under the HD Vest name.

Securities offered through HD Vest Investment ServicesSM, Member SIPC, Advisory services offered through HD Vest Advisory ServicesSM, 6333 N. State Highway 161, Fourth Floor, Irving, TX 75038, 972-870-6000.