If you are fortunate enough to not need the money from your IRA when you are required to take minimum distributions, you do have options. There is no requirement that your required minimum distribution (RMD) must be cash. You might consider taking the distribution in stocks, bonds, or any other investments. When the distribution occurs, the value of the investment is considered taxable income to you, so you will need to have the cash on hand to pay the taxes due.
Pulling equities or other investments from your IRA allows you to remain “fully invested,” and you will save on commissions since you will not be selling the investment inside the IRA, removing the cash, and then re-purchasing the same or similar investment in a taxable account. Additionally, by paying the taxes due on the RMD, you re-establish a new basis in that investment.
Moving RMD assets to a bond portfolio: We recently spoke with an investor who was in this situation, and his brokerage firm offered him the option of moving his RMD assets into a Madison Intermediate Fixed Income Portfolio that has average durations of one to six years.
- On the good side, the portfolio invests in high quality government agency bonds or investment grade corporate bonds.
- However, the portfolio is based on a fixed-income forecast model, which in this environment can be very difficult to predict. We see this investment as adding a layer of costs while serving no real benefit for the investor.
We believe your fixed income portfolio is there to provide for your liquidity needs. If you do not have the liquidity need in the next 10 years, your best bet for growth is in the stock market in high quality common stocks or mutual funds that invest in common stocks. We feel investors are better laddering out bonds to cover their liquidity needs.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
