IRA Minimum Distribution Options

As we have previously explained thew mandatory nature of the IRA minimum distribution, we are left with a question. What if you don't actually need the money you withdraw in order to pay your bills or for any other purposes? What if you would rather allow the money to grow tax deferred?

You must make the withdrawal, but here are a few options that you may reflect on:

1. Reinvest your IRA Minimum Distribution. Officially, it's not possible to rollover your IRA Minimum distribution to another tax sheltered retirement account, but you could reinvest your funds in a fixed or variable annuity. Your funds will grow tax deferred. Fixed annuities provide the conservatism similar to a bank CD while variable annuities provide the large investment menus similar to mutual fund offerings.

Given that you did not want to take the IRA minimum distribution in the first place implies that you don't need the money for your own use. And therefore, variable annuities may be the perfect choice because they provide a very interesting often-overlooked benefit to beneficiaries. That benefit allows you to select the most aggressive high-risk investment choices within the variable annuity and regardless of the investment performance, your heirs will never receive less than your original investment. With some variable annuities, your heirs will never receive less than the highest attained value of your variable annuity. Talk to your financial advisor.

2. Invest in high dividend stocks that you won't trade. By their nature, common stocks are tax deferral vehicles. If you buy a stock for $10 and it grows $!00 per share, you own nothing until you sell it. All of your gains are tax-deferred. Additionally, the dividends you receive are currently subject to a special lower tax rate. While the money you earn from working is taxed as high as 35% by the federal government, dividends are never taxed at more than 15%. Therefore, high dividend common stocks are very good vehicle for those who would like their money to grow on a tax-deferred basis.

3. You can donate your IRA minimum distribution using a qualified charitable distribution. Rather than you receiving your IRA minimum distribution, you direct your IRA custodian to send it directly to a charity. In that manner the distribution never flows through your tax return and will not increase your income for that year. This provides some hidden benefits that only a tax accountant would realize on their face. By keeping your income lower, you potentially increase the amount of itemized deductions or medical deductions for which you qualify. If you have charitable inclinations, talk to your tax advisor about this option.