The Return of RMDs

March 19, 2021

We can blame the Coronavirus for causing 2020 to be one of the most devastating years in the United States’ history. The illness brought about countless negatives but perhaps one of the few positives to emerge in 2020 was the ability to defer Required Minimum Distributions (RMD).

As we turn the page to 2021, the new year has brought a sense of optimism in the battle against the Coronavirus. With vaccine distribution underway and the case count on the decline, a return to normalcy later this year may be in the cards. With the slow crawl back to life as we knew it, comes the return of RMDs.

These are some strategies to satisfy the RMD this year.

  • Qualified Charitable Distributions (QCD)
    1. QCDs allow you to distribute money directly from an IRA to a charitable organization of your choice. Not only can you give to a cause that is close to your heart, but you can also reduce your tax bill. A normal distribution from an IRA is taxed at your income tax percentage, but a QCD is not taxable. Since the money is going directly to a qualified charity, the IRS permits investors to claim the entire distribution as nontaxable. QCDs represent a fantastic solution to potentially reduce your tax burden if you would like to donate to charity.
  • Reinvesting in a Non-Retirement Account
    1. The proceeds of an RMD can be put directly in a non-retirement account. The IRS only want to collect taxes on the RMD due to the monies going into the account on a pre-tax basis. There is no limitation on where the RMD goes after taking it out of the IRA. Therefore, you can put the distribution into a non-retirement account to keep the monies invested. While this growth will not be tax deferred, it will still give the opportunity for long term growth potential.
  • Establishing an Automatic Withdrawal Service
    1. You may need to draw from your investments to cover some expenses. If this is the case, establishing an automatic distribution can help ensure that you satisfy the entire RMD and you receive the funds for various expenses on a timely basis.

We look forward to discussing these strategies with you at your next meeting to determine which route suits your personal situation!


This is meant for educational purposes only.  It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. LPL Financial and its representatives do not offer tax or legal advice.  Please consult with the appropriate financial professionals regarding your personal situation prior to making any financial related decisions.