I'm officially old and need to take an RMD from my IRA this calendar year.

What's to stop me from turning around and making the same amount as this year's contribution?

Please clarify. Ar you still working and contributing?

Technically, you can't recontribute that distribution to an IRA, because an IRA distribution isn't "earned income". In order to contribute $X to an IRA, you must earn at least $X in income during the year. Things like investment returns, retirement account distributions, and Social Security do not qualify as "earned income".

However, if you still have another source of actual earned income like a job or a form of self-employment, you could contribute some of that income back to your IRA this year. (With the usual IRA rules about income limits, annual max IRA contributions, etc. still applying.)

So, for example, your RMD is $5000. And you also have a job where you made at least $5000 in income this year. You could take the $5000 RMD, and contribute $5000 to your IRA, for a net $0 change to your IRA. But it would technically be contributing $5000 of your income from your job, not the $5000 from your RMD.

Ah.

I don't have a W2 income, just SS and my Navy pension. Is that considered "earned income"?

OP, I also have to take RMD this year. It will be about 8% of my total investments. I going to pay the taxes on the amount and reinvest in the market. Make sure you take enough out for RMD. The fine for not paying on RMD is 50%.

quote:

Originally posted by PHPaul:
Ah.

I don't have a W2 income, just SS and my Navy pension. Is that considered "earned income"?

No. SS, pensions, investment returns, retirement distributions, rental income, etc. are not "earned income".

Basically just job-related income, either from a outside employer or self-employed.


So it sounds like you can't recontribute to your IRA. But you can take that RMD and reinvest it in a non-IRA (so taxable) investment account.

That's what I thought. I hate to take money out of a 3% earner and put it in my .001% savings. I'll have to look at CD's I guess.

Thanks for the info!

If you want greater returns than a savings account or CD and are willing to accept greater risk, you could open a taxable brokerage account and invest it in there, as I mentioned earlier.

There are some low risk investment options available, like bonds or money market funds.

Or, if you are comfortable with your retirement income and are willing to take greater risks, you can branch out into stocks, index funds, etc.

You might consider buying a few shares of a solid blue chip dividend paying stock, i.e. Exxon, Procter & Gamble, Lockheed Martin, Johnson & Johnson, Verizon....to name a few.

quote:

Originally posted by PHPaul:
That's what I thought. I hate to take money out of a 3% earner and put it in my .001% savings. I'll have to look at CD's I guess.

Thanks for the info!

If it helps, my savings account at Alliant CU earned 0.55% last month. Might not be the blue-chip return you're looking for, but 0.001% is why I moved virtually all my money outta Chase Bank. All Chase Bank is to me now is a convenient conduit to transfer money to pay bills. I know the thousands I pulled from them to Alliant was less than a drop in the bucket, but it made me feel good.

Well, as one of the poor kids, we're only talking about $1500 here. At first glance, that won't be enough to make CD/Money Market/Investment practical.

There are a number of brokerages whose investment accounts have no minimum amount. Fidelity and Vanguard are the two big ones, but there are a number of other options.

So $1500 is enough to start investing in a non-IRA investment account. Just make sure you understand the risks, fees, and tax implications of any investments you make.

You may check to see if you can put it in a Roth as long as you have income.
Maybe investing a different amount than the RMD would help but I'd get advice from someone in that business to be sure.

quote:

Originally posted by 220-9er:
You may check to see if you can put it in a Roth as long as you have income.

He already said that he doesn't have any earned income to qualify for an IRA contribution. All IRAs - both Roth and Traditional - require income earned from work compensation in order to make contributions. He stated his money comes from a combination of social security, a pension, and now this IRA RMD, which means he has $0 in applicable income for IRA contribution purposes.

If I did the math right, a 1 year CD @ 0.55% (Navy Federal's current offering) would net me $8.xx per year.

Worth more than that to me to have it liquid.

Couple suggestions to avoid problems I've seen over the years. Numbered for reference

1. If you only have one account, the trustee can compute the RMD for you. Skip point #2 if you only have one account.

2. If you have multiple accounts, make sure to consider all accounts when computing the RMD. You don't have to take a distribution from each account, but the RMD must be computed based on the balance in all the accounts.

3. Don't wait until the last minute to do the RMD. I've seen folks make the request in December and the request not get processed timely. There are penalties for not receiving a RMD (or you have to go through a process to explain what happened and request a penalty waiver).

4. Did you ever make a non deductible contribution to an IRA? (Talking traditional IRA - not a Roth.) If yes, then you'll need to know the total non deductible contributions and file IRS Form 8606. (You don't want to pay tax on the amounts you contributed that were not deductible!! Form 8806 makes sure you are not double taxed.)

5. Some people like to take the distribution late in the year thinking earnings for that year will remain in the account (and be tax deferred). Others take it early in the year - so they don't forget.

One investment option that is often overlooked are TIPS (Treasury Inflation Protected Securities) and Treasury I bonds (also "inflation protected"). These pay interest much higher than demand deposit accounts or CDs and are almost as liquid.

Also, SSI counts as taxable income if your total income is over $X, including if the RMD kicks it over the threshold. Meaning that you have to give Uncle Sugar some of it if you have significant earnings from employment or self-employment, or maybe even if you don't. Even if you can contribute the RMD back to the IRA, it means you'll have a marginally bigger RMD next year.

Hard to escape the tax man, but with some work you can reduce the burden.

As a suggestion, use your RMDs to establish and grow a non-retirement investment account, perhaps held in a family trust (so as to avoid probate) if you are concerned about transferring wealth to successor generations. You'll still have to pay income tax on it, of course, as well as on earnings in the non-retirement investment account, e.g. capital gains when the money comes out of it.

If your concern is getting returns as your IRA then assuming your IRA is invested in stocks, you'll have to do what RogueJSK said: open a regular brokerage account.

However, that's not going to help your future RMD requirements. I assume you're already 72 years old.

You can still do what I'm about to tell you but it's even better for those with an IRA and still younger than 72 years old.

What you should do after you take your RMD is to figure out your total income for the year which includes your Social Security, pension, interests, etc. Then figure the difference between your total income and your next tax threshold. For example, your next tax threshold may be the 22% Federal tax bracket which maxes out at $172,750; income after that gets taxed at 24%.

What you can do then is, depending on your druthers, is to withdraw that difference from your IRA pay taxes on that and it will lessen your future RMDs. Any future capital gains, interests, and dividends will be exposed to income tax. But you can earn $80,800 each year in qualified dividends and capital gains tax at 0% taxes. This is called efficient tax planning as you're avoiding getting pushed up into higher tax brackets in future years.

Or, you can convert all or a portion of the difference from your IRA into a Roth IRA. Any capital gains, interests and dividends will be tax free and any withdrawals won't count as income. The downside is you can't touch what you convert for 5 years.

quote:

If I did the math right, a 1 year CD @ 0.55% (Navy Federal's current offering) would net me $8.xx per year.

Amex & Marcus (Goldman Sachs) have .50% liquid savings accounts. I use Marcus & PNC bank.

quote:

Originally posted by Anush:

quote:

If I did the math right, a 1 year CD @ 0.55% (Navy Federal's current offering) would net me $8.xx per year.

Amex & Marcus (Goldman Sachs) have .50% liquid savings accounts. I use Marcus & PNC bank.

Amex & Disc here .50

Go Fed