Q: I have a question about Qualified Charitable Distributions and the distribution I have to make when I turn 70 ½ next spring. I know I can make my QCD directly to my church or charity, but what do I do with the money that I am forced to take out of my 403(b)s or my IRA rollovers? Do I open another mutual fund index fund, buy stock, or put it in CDs?
—J.B.
A: Making your QCD directly into a charity is a tax-savvy way to donate money. The strategy is available only with IRAs and you must be at your Required Minimum Distribution (RMD) age of 70 ½ and over. You can make a QCD from a rollover IRA, by the way. But not from an employer-sponsored plan like a 401(k) or 403(b). For anyone intrigued by the QCD option, please check with a professional. Like so many laws attached to retirement savings plans, there are twists and traps for the unwary.
Now to the specifics of your question. You can do what you want with the money you withdraw for your RMD from your 403(b). Joel Larsen, principal and certified financial planner at Navion Financial Advisors in Davis, Calif., advises to not invest any money you plan to spend within the next year or so.
Martha Pomerantz, partner and portfolio manager at Evercore Wealth Management in Minneapolis, adds that you will want to set aside any money you owe in taxes from the withdrawn RMD. She, too, emphasized thinking about the time horizon for the money. "With the remainder, you need to assess your personal circumstances and decide what the purpose of these funds [is]," she says.
In other words, you can put the money into a savings account, invest in equity mutual funds, spend it, and so on. A study several years ago by the Vanguard Center for Retirement Research found that retirees don't necessarily spend all that they take out with their RMD. Retirees with at least $100,000 in household wealth that took the minimum required distributions reinvested about a third of the money.
I would take advantage of your circumstances to think about the best use of the money tailored to your goals. Perhaps you are concerned that the economy may slip into recession over the next year or two. You might want to use the extra RMD to increase your rainy-day fund. Maybe the extra money will convince you to book that trip you have been thinking about or to invest in 529 college savings plans for the grandchildren. You have the advantage of choice.
Chris Farrell is senior economics contributor, "Marketplace," commentator, Minnesota Public Radio.
