Many people look at the RMDs as a necessary evil that comes after they turn 70 1/2. The fact is there are several things you can do to minimize the tax impact and/or make the money still work for you after you've taken it out of a traditional IRA. Here are a few tips:
Plan when to take them - If you turned 70 1/2 in 2015, you have until April 1 of this year to take your first RMD. Similarly, if you turn 70 1/2 in 2016, you have until April 1 of 2017 to take the first one. Thereafter you must take your RMD by December 31st of each year.
Use your regularly scheduled portfolio review to take the opportunity to determine where to raise cash in your investments - If you have to trim some oversized position(s) or sell unattractive ones, use that to raise cash while bringing your investments back into balance.
Be aware of the tax impact of taking your RMDs. Take the time and effort to review all of your finances to see if there are places to offset the taxes incurred by the RMDs.
Consider reinvesting - If you don't need the money, there are strategies for putting the money back to work. Reinvest it into a taxable account. If you or your spouse is still working and have earned income, you can put the money in a Roth IRA which has no RMD requirement. If you are still working you should look into rolling your money into a 401(k) if available. You don't have to take RMDs as long as you're employed. You should also consider converting traditional IRA assets to a Roth IRA.
Give back - By making a qualified charitable distribution, you can lower your tax bill. If you have the distribution sent directly to the charity of your choice, you meet your RMD requirement, reduce your taxable income and make a charitable contribution: a "three-fer", if you will.
While RMDs are a requirement, there are ways you can minimize their impact on your bottom line. If you have further questions about RMDs or other financial planning issues, please feel free to get in touch.