The end of the year is fast-approaching, which means retirees aged 70½+ have an important item on their checklist: fulfill your Required Minimum Distributions (RMDs)!

Not doing so properly could mean paying up to a 50% penalty on your unfulfilled RMD, losing hard-earned money in the process. You have until December 31 to take your RMD (April 1, 2016 if you just turned 70½ this year), but it’s important to remember that you must allot extra time for trades to settle if you’re selling securities to raise cash. It’s best not to wait.

Your RMD is calculated based on your age, life expectancy, and the value of your tax-deferred account(s). A quick call to your custodian should provide you the figure you need.

Unique Strategies

Often, fulfilling a Required Minimum Distribution is as simple as having funds drawn from your retirement account in the form of a check or an ACH transfer. This method is fine if you have immediate discretionary cash needs. But what if you don’t?

Here are four unique strategies for taking your RMDs, which perhaps you didn’t know were available:

1) Transfer Securities to an Investment Advisor or Brokerage Account – if your retirement account is fully invested (stocks, bonds, mutual funds, etc.), you may have the option to transfer securities to a taxable investment advisor or brokerage account to fulfill your RMD. The value of the shares (at the time they transfer out of your retirement account) counts toward your RMD. Here are a few advantages to this method:

  • Keeps you invested throughout the process
  • Helps you avoid potential transaction fees associated with selling shares to raise cash
  • You can use your RMD as a strategic opportunity to rebalance your retirement portfolio. For instance, if you are overweight large cap stocks in your retirement portfolio but want to trim back your exposure, you can transfer out shares of large cap stocks or mutual funds to get your asset allocation where you want it

2)  Donate your RMD to Charity – fulfill your RMD by sending cash or securities from your retirement account to the qualified charity of your choice. The amount of money that leaves your retirement account for the charity counts toward your RMD.

  • To note, individuals age 70½ or over can exclude up to $100,000 from gross income for donations paid directly to a qualified charity their IRA. Qualified charitable contributions (QCDs) may satisfy IRA required minimum distributions for the year.

3) Need the Cash, But Not Right Away? Consider Distributing a Blend of Cash and Stock – Let’s say that your RMD is for $10,000, but you only want $2,500 of it now for holiday shopping and travelling. The $7,500 can wait. An option for you in this case would be to distribute $2,500 in cash, and then transfer $7,500 worth of stocks or other securities into a brokerage account. This way, you can stay invested with the money you don’t need right away.

  • If you have your IRA and brokerage account held at the same custodian, you can likely handle all of these transactions electronically, in less than 10 minutes.

Bottom Line for Retirees

There are several ways to fulfill your RMD, and it’s worth exploring which method – or combination of methods – best suits your current financial situation. With only a few weeks left in the year, we’d urge you to get this process started soon, as it can sometimes take a few days or even weeks to complete.

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