RMDs Are Back: What to do With Your Required Minimum Distributions

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Ideas for putting your RMD to work for the good of others.

After a brief hiatus in 2020 as a result of the CARES Act, required minimum distributions (RMDs) are back, but with some rule changes thanks to the SECURE Act. Click here to get all the details on the rule changes and other aspects of taking your RMD.

After checking the rules, you may have determined you need to take your RMD before year end. Here are some ideas on how to put that money to work:

Give the gift of a lifetime

Whole life insurance creates a living legacy that will help your child or grandchild get a head start on their financial future. And, unlike most gifts that get lost or broken or lose value over time, whole life insurance has the potential to accumulate cash value each year that can be borrowed for a many uses such as paying for college, a down payment on a house, or to start a business.

Life insurance premiums are generally lower for children because they are young and tend to be healthy. Purchasing whole life insurance for a child now will help ensure that he or she has guaranteed protection for life.

There are many types of whole life policies to choose from. Let your Barnum financial advisor help you select the one that best suits your goals and circumstances.

Give the gift of education

Another alternative is to put your RMD into a 529 Education Savings Plan. This allows your RMD to help pay tuition or other college expenses for a grandchild or an adult child who wants to go back to school for an advanced degree. Your RMD gift will grow tax-deferred and withdrawals for qualifying education expenses are tax free. There are no annual contribution limits but there are maximum contribution limits that vary by state. A Barnum financial advisor can help you set a 529 account in the name of the person you want to benefit and help you invest the money for their future. Alternatively, you can contribute to an already existing 529 owned by either the child or a parent.

Give to a charity you believe in

When you direct an RMD to charity, it becomes a qualified charitable distributions (QCD) and is no longer considered taxable income. IRA owners who are at least 70 ½ may transfer as much as $100,000 directly to charity each year, tax-free.

Of course, you can always spend the money any way you want or reinvest it in a non-qualified account. The choice is all yours. Just remember to take your distribution before the December 31st deadline. Failure to do so will result in a 50% penalty which would be a shame given all the great things that money can do.