4 Ways to Reinvest Your Required Minimum Distribution

Once you reach seventy and a half years of age, you will have a Required Minimum Distribution (RMD) from your retirement account. This must be taken out each year, or it will be withdrawn for you at year's end with a penalty of 50 percent of the total RMD. Therefore, withdrawing the funds is essential to preserving the wealth you have built for retirement. If you do not immediately need the funds, consider reinvesting in an alternative manner to continue growing your savings.

#1 Find a High-Yield Fund

A high-yield fund can provide you with regular distributions to keep your cash flow high during retirement. Your principal value in the fund, though, will remain the same as long as the fund is prosperous. For example, a high-yield Exchange Traded Fund (ETF) is an excellent option to reinvest in. The fund trades like a security, so you can easily purchase shares or sell in the future. While you hold the ETF, you will receive regular distributions taxed at your annual income tax rate. This can give you some spending cash from your RMD money, but you will always keep the shares as an investment that can be sold to recover the RMD value in the future.

#2 Set up a Trust

If you are beginning to think about estate planning for after your death, a trust is one option that can preserve a large degree of your wealth. A retirement account is not passed down through a will or trust. Instead, it is passed to a beneficiary listed on the account. Therefore, the process of handing down your IRA, 403(b) or other retirement account is not very flexible. If you put the RMD into a trust, however, you will have a great deal of flexibility in leaving the money to any beneficiary you name, including a charity. That beneficiary will also have more flexibility with the funds once they are passed on.

#3 Invest in Property

If your RMD is enough to cover a mortgage payment on a piece of property each year, consider a property investment. Property is a generally stable investment, barring any abnormal market conditions. Furthermore, property can be enjoyed while it remains an investment. Income property is another great option to keep earning off your RMD. An income property, such as an apartment you rent, will maintain an equity value while still giving you some spendable income.

#4 Consider Socially Responsible Investments

Many retired individuals are financially stable enough to be discerning with where they invest their dollars on a socially conscious level. Instead of simply seeking a high return, they have the flexibility to invest in sectors that will make an impact on the world in line with their own ethical values. Reinvesting your RMD into funds for emerging markets, green technology or humanitarian efforts can be a very rewarding way to spend your new found income. You may even consider setting up a scholarship fund and paying a higher education tuition with your RMD. This is not an investment in your own financial future, but the future of another individual of your choosing.

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