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What to do With Required Minimum Distributions You Don’t “Need”

May 7, 2014 0 comments Finances, Financial Freedom

What to do With Required Minimum Distributions You Don’t “Need”

By Greg Hammond

Some individuals simply don’t need their full Required Minimum Distribution (RMD) amounts for living expenses; they’d rather keep the money invested, so that it can compound and grow. Of course, most would no doubt like to keep deferring the tax bill on their IRA assets, too. Although it’s impossible to circumvent RMDs without incurring big penalties, there’s nothing saying you have to spend that money, either. Instead, you can keep at least some of your distribution working on your behalf. The following strategies can help you maximize the RMD proceeds you don’t need for living expenses.

Look for a Roth Opportunity

If you have unused RMDs, steer a portion to a Roth IRA. You can contribute to a Roth at any age, and your withdrawals will be tax-free provided you meet certain criteria. The catch is that you or your spouse must have enough earned income to cover the amount of your Roth contribution–unearned income such as your pension, IRA withdrawals, income from other investments, or Social Security benefits don’t count.

Fund a Tax-Efficient Wealth Replacement Strategy

Individuals who do not need RMDs typically pass on IRA assets to heirs at death. IRA accounts are one of the least desirable assets to pass on to heirs, as they will be taxed at ordinary income tax rates upon distribution. A tax-efficient strategy uses unneeded RMDs to purchase a life insurance policy that names the heirs as beneficiaries. Life Insurance proceeds can be received tax free, allowing the IRA owner to give the remainder of the IRA to groups that don’t pay income taxes, like charities.

Charitable Giving While Living

At this time, there is no allowable Qualified Charitable Deduction for tax year 2014 because Congress has not renewed this provision. Should they decide to renew the provision as it existed for 2013, you would be able to donate all or part of your RMDs, up to $100,000, directly to a qualified charity. By sending a donation directly to a charity, you would not owe income tax on the amount of the donation or see an increase in adjusted gross income (AGI) that generally accompanies an RMD. Lowering your AGI, in turn, makes it more likely that you’ll qualify for deductions and credits, which typically hinge on AGI. Keeping your AGI down also reduces the chance you’ll be affected by the Medicare surtax.

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Greg Hammond
Greg Hammond is passionate about helping people make a greater impact in their lives, their families, and in their communities. Using his remarkable range of experience, Greg helps individuals establish what’s most important, then set and pursue goals toward preserving and growing their wealth. He believes everyone should have a chance to “do and achieve what matters most.” As a wealth advisor, Greg has counseled hundreds of individuals, families, and business owners on developing strategies for investments, intergenerational wealth transfer, building a legacy, reducing taxes, protecting the value of their estates, and charitable planning. A sought-after charitable giving and financial educator, consultant and speaker, Greg has been in financial management for more than 20 years. He is frequently interviewed by the media; recently by the Wall Street Journal for “Earning Income While Making a Gift” and the Hartford Business Journal Nonprofit Notebook for “Planned Giving.” Greg co-hosted the radio show, “Planning for Tomorrow” on WTIC News Talk 1080AM covering topics such as creating lifetime income, charitable use of life insurance, and philanthropic planning. He has been interviewed on WTIC AM news, published a special report on nonprofit challenges, and regularly speaks on “Building a Legacy” at national and regional conferences, estate planning councils, religious and nonprofit organizations. A graduate of Miami University, Oxford, Ohio with a B.A. in Accounting, Greg is a CERTIFIED FINANCIAL PLANNER™ Professional and Certified Public Accountant. Greg is also a certified True Wealth Consultant, a member of the Partnership for Philanthropic Planning (PPP), The Planned Giving Group of Connecticut (PGGCT), The Financial Planning Association (FPA), Association of Fundraising Professionals (AFP), The American Institute of Certified Public Accountants (AICPA) and the International Association of Advisors in Philanthropy (AiP). Greg’s commitment to making a difference has guided him to participate in Habitat for Humanity and to lead groups on mission trips in the United States and Mexico. Greg contributes to his local community as a board member for PGGCT, Treasurer for Westminster Presbyterian Church and Advisory Board member for The Connecticut Forum. Greg and his business partner, Scott Iles, sponsor many annual fundraising events for nonprofit organizations including a golf tournament to benefit ALS and fundraising for the Connecticut Children’s Medical Center. A published author, Greg lives in West Hartford, CT with his wife Karen and their two daughters. Greg enjoys research and writing, tennis and a challenging game of golf when he is not at the office or enjoying time with his family.

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