How to Use Required Minimum Distributions to Your Advantage

Begin taking them early.At age 59-½, you can begin withdrawing funds from tax-deferred accounts without incurring a penalty. This can prevent accumulating too much in tax-deferred accounts, which couldmove you into a high tax bracket when combined with Social Security benefits and other incomeduring retirement.

Convert to a Roth account before age 73.Roth accounts are exempt from RMDs, and althoughyou’llpay ordinary income tax onconvertedfunds, Roth assets are then tax-free for future withdrawals. Converting funds to a Roth IRA is often wise if youexpect a higher incomefromretirementbenefitsandaren’treliant onfunds from yourtax-deferredIRAfor immediate expenses.

Optimizethe accounts from which RMDs arewithdrawn.Look at the aggregated value of retirement assets across all accounts andhow market fluctuations might have affected them differently. Take your RMD from the account—or combination of accounts—that is the most tax-efficient or has lost the least value.Besure to consider your target asset allocation and long-term diversification goals.

Establish automatic annual withdrawals.This not only ensures you never miss an RMD deadline but also allows you to betteranticipatecash flow throughout the year and avoidthe extra work of making manual distributions at year-end.

Leverage dividends and interest income.Dividends andthe interest they accumulate act as cash inside an IRA, which canthenbewithdrawnto satisfy your annual RMD.‘Turning on’ this source provides the steady income you need ordistributionrequiredwithoutaltering the core account balance each year.

Make charitable contributions directly from IRAs.If youdon’tneed your RMD as income during retirement, assets can be transferred directly to qualified charities. Qualified charitable distributions count towardtheRMD but are excluded from your taxable income.

Reinvest the distribution.Again, if youaren’treliant onRMDcash for living expenses, reinvesting the distribution in a brokerage account maximizes your exposure to potential continued growth.

Take ‘shares in-kind' distributions.If youdon'thold cash or cash-equivalent securities in your IRA, you can sell stock to satisfy your RMDormake in-kind distributions.Bytransferring assets from tax-deferred retirement accounts to taxable accountsinstead of selling them first,you can remain invested while satisfying your RMD obligation. Keep in mind, however, that you will owe income tax on thefair market valueof the assets as the time of distribution.

Leverage newqualified annuity income rules.Thanks to the SECURE 2.0 Act, annuity paymentsmore thantheRMD amount for an annuity can now be used to satisfy the RMD for other accounts. This could keep yourretirement portfolio invested longer and allow potential for greater tax-deferred growth.

Strategically time distributions with other incomesources.Determiningwhen to take withdrawals and when income from other sources hits can affect your tax bracket.RMDs can be withdrawn monthly, quarterly, or in a lump sum as long as you satisfy the minimum amount by year end.By coordinating the timing, purpose, and methodsofdistributions, you can lower your overall taxable income.