Deciding what to do with the RMD (the what?)

Along with when to start social security and which Medicare plan to choose, retirees who have tax-deferred savings plans have another major decision to make: what to do with the Required Minimum Distribution. 

In case you’re not old enough to be aware of the RMD, neither was I until a few years ago. When my financial adviser said, “We need to talk about the Required Minimum Distribution,” she had to explain it to me: A certain percentage must be withdrawn annually from heretofore tax-free savings after age 70½. The government wants to collect taxes on those IRAs eventually.

If you are or were fortunate to have a generous workplace 401K or 403B plan, as I had at Northwestern University, you may have accumulated a decent nest egg. When the time approached to start taking the Required Minimum Distribution from those investments, I was uptight about what to do with the money. I don’t need it now. My monthly social security check, though modest, is enough for frugal me to live on without a mortgage and car payments. 

The RMD can be reinvested in taxable accounts, and I ended up doing that with the bulk of it. I may need money for medical care, assisted living, or unforeseen expenses down the road. Reinvesting the entire RMD, however, seemed like putting off a decision. I wanted to be more thoughtful. 

Should I spend more? My habits are so ingrained that I can’t imagine changing them. Nor do I want to. Living simply aligns with my values. I have no desire to move to a more expensive condo, shop on Oak Street, or take a round-the-world cruise. I’m more interested in exploring my own backyard than in going abroad. I prefer ethnic storefronts to four-star restaurants. It’s fun to search for bargains at thrift shops. Ushering for plays instead of buying tickets brings the potential of meeting new people. 

After months of stewing, I decided to tithe — to give one-tenth of the income from both social security and the RMD to charities. Tithing is something many churches advise, but it’s not just a spiritual practice. There is even a website where people pledge to give away at least 10 percent of their incomes for the rest of their lives. The reasoning is that 10 percent isn’t a sacrifice for many of us in wealthy nations, and what we have is a gift. Considering that my savings grew more from investment gains than my labor, I have no trouble thinking of them as unearned. 

In the past my contributions were piecemeal — $25 here, $50 here, a bigger chunk to church. Since I don’t itemize my taxes, I didn’t keep track of what they added up to. Now I would make a mindful determination of how much to give in all, and how to divide it up. Charity Navigator helped me identify efficient charities in areas of interest.

RMD donations to charitable organizations aren’t taxed as long as the money goes straight from the investment account to each charity. My Fidelity Investments adviser had the checks sent out based on a list I provided. I was able to give anonymously to charities I don’t want solicitations from.

Every January my adviser and I are going to meet to decide my tithe for that year based on my adjusted income from social security and the RMD. I’ll reevaluate the list of charities, and she’ll send out checks again.

I’d like to say I feel great about tithing, but the truth is, once it was accomplished, it was out of mind. It was like having bills paid automatically from a checking account; you don’t think about it as money you could have spent in other ways.

When I consider that I might have tithed earlier, perhaps all my working life, 10 percent now isn’t particularly generous. That thought led to another decision: to add charities to the list of beneficiaries on my IRA. Should my savings not be depleted by medical bills and assisted living, I’ll be able to leave this earth knowing that I’m still supporting worthy organizations.



“The EPA on the track it’s on . . . is endangering public health. . . . [F]ive decades of environmental progress are at risk because of the attitudes and approach of this administration.”

— Christine Todd Whitman, EPA administrator under George W. Bush 

Leave a comment