What should a person do with the money from required minimum distributions (RMDs) if they don’t need to live off of it?

Vanguard’s Senior Financial Advisor, Kevin Miller has a recommendation for you if you don’t need to use your RMD right away. He discusses setting goals and investing these funds and provides advice on distribution schedules, beginning at age 70½. 

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Akweli Parker: So let’s take another pre-submitted question from our viewers, and this one comes from Patricia from parts unknown, but it’s a really good question. She asked, “What should a person do with the money from those RMDs, required minimum distributions, if they don’t need to live off of it?” So our good friends at the IRS say that you have to take it, but what if it’s really not necessary for you?

Kevin Miller: Absolutely. So, if you don’t need to spend the money, a lot of times we would tell you to move it to a taxable account and get it invested. What you would want to do then is match the investment to the goal that you have. So if it’s money that you may not need to spend right away but maybe in six months or a year, you’d want to invest it in something that’s a little less risky versus if this is money that you could invest for five or ten years, maybe something that gives you more growth potential but is also a little riskier. So, you know, just making sure that you take it out and then invest it in a tax-efficient way that matches the goal that you have.

Akweli Parker: So you’re complying with the IRS rules and potentially expanding the length of your retirement savings as well by reinvesting.

Kevin Miller: Exactly.

Akweli Parker: Excellent, excellent. So our next question comes from Sally in Annapolis, Maryland, and she asks, “How often should you take a distribution?” So monthly, quarterly, yearly?” So what should the cadence be? Kevin, I’m going to pass this one to you as well because I’m sure your clients probably ask this one a lot.

Kevin Miller: Sure. And when it comes to the distribution schedule, there are no hard and fast rules. I usually tell clients to match it to the particular needs. So for someone, let’s say, that’s taking a required minimum distribution that needs monthly income, they’ll typically take it monthly. For someone that maybe doesn’t need the money or has it set up where they have a year’s worth of expenses already in a cash position, maybe they’ll take it in a lump sum towards the end of the year.

So the IRS doesn’t really care when you take it out throughout the year. They just want to make sure that it’s out by year-end, and then you can just match it based on whatever it is that works for you.

Akweli Parker: Okay, so it’s really just a matter of personal need, right?

Kevin Miller: Exactly.

Akweli Parker: Right, right. Okay, so this RMD subject seems to be pretty popular. We have a live question on it, and Doug asks, “RMDs start when you reach age 70, is that correct?”

Kevin Miller: It’s the year that you turn 70½.

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