Start Here: What To Do With This Year’s RMD
You’ve got an RMD to take this year. The question isn’t “Do I have to?”—it’s “How do I use it so I keep more after taxes and don’t mess up Medicare or my plan?” This guide shows smart ways to put your RMD to work: cover living costs without overspending, give to charity the tax-efficient way, shrink future RMDs with bracket-friendly Roth conversions, lock in a dependable paycheck with a GLWB if you want guaranteed income, or use a MYGA ladder for simple cash flow. We’ll explain when each move saves you money, when it doesn’t, and how to combine two or three tactics for your exact situation.
While reviewing practical ways to handle your RMDs and reduce taxes, retirement annuities for boomers can help coordinate retirement income with RMDs, inflation, future care costs, and legacy goals as retirement gets closer.
1) Use RMDs To Cover Living Expenses
- How it works: Withdraw your RMD and use it for essentials, travel, or healthcare.
- Why it’s unique: Simplifies budgeting and guarantees you meet IRS rules.
- Pros: Provides dependable income; easy to execute.
- Cons: Reduces account balance over time; may raise taxable income and IRMAA.
- Who benefits: Retirees whose spending plan depends on pre-tax withdrawals.
- Who doesn’t: Households already covering expenses with pensions, Social Security, or annuity income.
2) Take RMDs In Monthly Or Quarterly Installments
- How it works: Split the annual RMD into smaller, scheduled payments.
- Why it’s unique: Smooths cash flow and avoids year-end rush.
- Pros: Reduces market-timing risk; easier budgeting.
- Cons: Requires a little setup and monitoring.
- Who benefits: Retirees who want a paycheck feel.
- Who doesn’t: Those preferring a single lump sum.
3) Reinvest RMDs In A Taxable Account
- How it works: Withdraw RMDs, then reinvest in a brokerage account.
- Why it’s unique: Keeps money working after distribution.
- Pros: Potential long-term growth; can harvest losses/gains tax-smart.
- Cons: Dividends/realized gains may be taxable; sequence risk remains.
- Who benefits: Investors who don’t need the cash now.
- Who doesn’t: Retirees who need liquidity for near-term spending.
4) Invest RMDs In A Municipal Bond Fund
- How it works: Move RMD cash to muni funds for federally tax-free income.
- Why it’s unique: Creates a tax-efficient income stream outside the IRA.
- Pros: Tax-advantaged income; can lower future taxable income.
- Cons: Typically lower yields; credit/interest-rate risk.
- Who benefits: Higher-bracket retirees and those in high-tax states.
- Who doesn’t: Low-bracket retirees, where the tax edge is minimal.
5) Convert To A Roth IRA Before RMDs Begin
- How it works: In your pre-RMD years, convert slices of traditional IRA to Roth to “fill” target tax brackets.
- Why it’s unique: Roth IRAs have no lifetime RMDs; qualified withdrawals are tax-free.
- Pros: Shrinks future RMDs and lifetime taxes; adds tax-free flexibility.
- Cons: Triggers taxes today; RMDs themselves can’t be converted.
- Who benefits: Early retirees in temporarily low brackets; widows/widowers facing single brackets later.
- Who doesn’t: Those already in high brackets this year.
6) Donate RMDs With Qualified Charitable Distributions (QCDs)
- How it works: Send up to the allowed limit directly from your IRA to charity; counts toward RMD but stays out of taxable income.
- Why it’s unique: Lowers AGI rather than offering a deduction.
- Pros: Reduces taxes and potential IRMAA; simple for givers.
- Cons: No additional itemized deduction; must follow transfer rules.
- Who benefits: Charitable retirees who don’t need the RMD for spending.
- Who doesn’t: Non-donors or those who prefer appreciated-asset gifting.
7) Use A Qualified Longevity Annuity Contract (QLAC)
- How it works: Move a portion of IRA dollars into a QLAC; those dollars are excluded from today’s RMDs until income begins later (as late as age 85).
- Why it’s unique: Defers some taxes and creates a late-life guaranteed income.
- Pros: Reduces near-term RMDs; longevity insurance.
- Cons: Illiquid until payouts; no market upside.
- Who benefits: Large pre-tax balances and longevity concerns.
- Who doesn’t: Those needing flexible access now.
8) Create A Lifetime Paycheck With A Fixed Index Annuity (GLWB)
- How it works: Roll a portion of assets into a fixed index annuity with a Guaranteed Lifetime Withdrawal Benefit to cover essential expenses.
- Why it’s unique: Principal protection plus a contractual lifetime paycheck you can’t outlive.
- Pros: Income floor; reduces sequence-of-returns risk; helps time taxable withdrawals.
- Cons: Surrender periods; rider fees; payout rules vary by contract.
- Who benefits: Retirees wanting predictable income and simpler RMD coordination.
- Who doesn’t: Short-term planners seeking full liquidity or maximum equity upside.
9) Build A MYGA Ladder To Fund RMDs
- How it works: Buy multi-year guaranteed annuities (MYGAs) with staggered maturities matching upcoming RMD years.
- Why it’s unique: Creates a CD-like, scheduled cash source for RMDs.
- Pros: Guaranteed rates; tax-deferred growth; reduces forced selling of stocks.
- Cons: Early-withdrawal penalties beyond free amounts; rates can change.
- Who benefits: Safety-first retirees who like simple, scheduled cash.
- Who doesn’t: Investors demanding full liquidity.
10) Roll Over To An Annuity With An Enhanced Death Benefit
- How it works: Move IRA/401(k) dollars to a qualified annuity offering enhanced death benefits to help preserve legacy while taking RMDs.
- Why it’s unique: Coordinates lifetime withdrawals with beneficiary protection.
- Pros: Legacy-friendly features; structured income.
- Cons: Fees and surrender charges may apply; features vary by carrier.
- Who benefits: Households prioritizing inheritance value.
- Who doesn’t: Those without legacy goals.
11) Withdraw More Than The RMD (On Purpose)
- How it works: Intentionally take extra distributions in low-tax years to shrink future RMDs (and possibly convert to Roth).
- Why it’s unique: Trades some tax now for lower lifetime taxes later.
- Pros: Reduces future bracket spikes and IRMAA risk.
- Cons: Raises current-year taxes and may impact benefits.
- Who benefits: Retirees expecting higher future rates or single filing later.
- Who doesn’t: Those already at high brackets or near IRMAA cliffs this year.
12) Fund A Long-Term Care Insurance Policy
- How it works: Use annual RMDs to pay LTC insurance premiums (traditional or hybrid).
- Why it’s unique: Turns a taxable obligation into protection against a major retirement risk.
- Pros: Shields retirement plan from LTC shocks; some premiums may be deductible if itemizing.
- Cons: Premiums can be high; underwriting is required.
- Who benefits: Households aiming to protect assets and family caregivers.
- Who doesn’t: Those planning to self-insure or qualify for Medicaid.
13) Use RMDs To Fund Permanent Life Insurance (Legacy Neutralizer)
- How it works: Pay premiums with RMDs to create an income-tax-free death benefit for heirs.
- Why it’s unique: Repositions taxable distributions into a tax-efficient legacy.
- Pros: Efficient inheritance; potential cash value.
- Cons: Requires insurability; ongoing premiums; policy charges.
- Who benefits: Legacy-minded families and business owners.
- Who doesn’t: Those with no heirs or no legacy goals.
14) Delay RMDs With The Still-Working Exception
- How it works: If you’re 73+ and still working for the employer sponsoring your current 401(k), you may delay RMDs from that plan (not from IRAs or old plans).
- Why it’s unique: Extends tax-deferred growth.
- Pros: Defers taxable income; simplifies planning while employed.
- Cons: Limited to the current employer plan and plan rules.
- Who benefits: Older workers delaying retirement.
- Who doesn’t: Retirees and those without the exception available.
15) Consolidate Accounts And Automate RMDs
- How it works: Merge scattered IRAs and old 401(k)s into one IRA (or IRA annuity) and turn on autopay RMDs.
- Why it’s unique: Cuts errors and paperwork.
- Pros: Easier tracking; fewer missed RMD risks.
- Cons: No change to total RMD amount; may lose certain plan-specific perks.
- Who benefits: Anyone juggling multiple custodians.
- Who doesn’t: Those intentionally keeping a unique, ultra-low-cost plan.
Putting It Together (Examples That Work)
- Income-first plan: #8 GLWB paycheck for essentials + #2 installment RMDs + #6 QCDs for giving.
- Tax-minimizer plan: #5 pre-RMD Roth conversions + #11 strategic extra withdrawals + #4 muni fund for tax-efficient income.
- Legacy-focused plan: #10 enhanced-death-benefit annuity or #13 life insurance + #3 reinvest excess in taxable index funds.
- Simplicity plan: #15 consolidate and automate + #1 spend the RMD + #9 MYGA ladder for the next 3–7 years of cash.
Quick Money-Saving Tips
- Mind the cliffs: Map IRMAA and tax brackets before converting, gifting, or realizing gains.
- Charitable? Use QCDs first to cut AGI.
- Gap years count: Do heavier Roth conversions after retirement but before Social Security/Medicare.
- Right-size guarantees: A modest GLWB can let you withdraw less from taxable sources in down markets.
Final Thoughts
At The Annuity Expert, we’re an independent retirement planner and insurance agency. We’ll compare annuity quotes (FIA with a GLWB, MYGA, SPIA/QLAC), price LTC and life insurance if they fit, and build a year-by-year RMD plan that lowers lifetime taxes.
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Tell us your age(s), account types/balances, income sources, charitable goals, and legacy priorities, and we’ll map the best combination for you.
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