Strategies for reinvesting your RMD

If you’re in the enviable position where you don’t need your required minimum distribution for income what are your options? Kahlilah Dowe of Vanguard Personal Advisor Services® lays out your choices.

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TRANSCRIPT

Amy Chain: Good, great. Let’s talk about RMDs. What’s the best place to put assets from RMDs that aren’t currently needed to minimize tax consequences of what amounts to unnecessary income. So this question’s coming in from Chris. Kahlilah, let’s talk about RMDs.

Kahlilah Dowe: Sure, sure. So clients who are 70½ or older generally have to take required minimum distributions from their IRA accounts or their tax-deferred accounts. But some clients, obviously, don’t need the income to cover expenses. And so for those clients who don’t need the income to cover expenses, but expect to leave the money invested for quite some time, then they’re looking for tax-efficient ways to invest it, so ways to invest the money, ways that won’t give off significant income. And so my thought is if you have quite a bit of time to leave the money invested, you can take a long-term outlook. You could invest it, let’s say, in tax-efficient funds, stock index funds. That’s one thing. If you’re in a high tax bracket, you could invest in municipal bond funds. Those are tax-efficient. The one thing I would stress though is that before you go in that direction, you want to make sure that you don’t have a need for that income, not just this year, but let’s say next year. It’s something that you should really have a longer-term horizon for if you’re looking to reinvest it.


Important information

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This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation. Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor.

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