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What To Do With My RMD?


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    Kyle Schlossman

    Hi Brian,

    To help with your decision, it is common to compare the interest rate on your debt to the rate of return you're expected to earn on assets that you would otherwise invest in.  Some would say that because you are expected to earn a higher rate of return on the assets (4.8%) vs the interest rate on the debt (3.2%), that you should not pay off the extra principal and instead invest it.  In reality, however, it is not that easy.

    1) The level of indebtedness that one maintains is to some degree a personal preference (I for one like to minimally use debt, even if it is for a mortgage with a low interest rate).  So even if the interest rate is relatively low, you could still use the funds to pay off your mortgage for peace of mind, if that is so desired.

    2) The expected rate of return on your investments could change.  If you decide to pay off an extra amount to your mortgage, you are essentially guaranteed a 3.2% return on those funds (by saving interest costs, which are stagnant on a mortgage assuming it is fixed).  If you put the money elsewhere, like in a money market, in bonds, in T-bills, etc., you will likely earn more than 3.2% in the current environment, but it is certainly not guaranteed that the current market rate will remain as is.  The economy could contract, interest rates could go down, and the yield on your money market could approach or go below 3.2% in relatively short order (conversely, interest rates could continue to rise from here, and your money market rate could go up.  No one knows with certainty what will happen, quite simply).

    If it were me and I was somewhat averse to having debt, I would just use half ($4K) to pay off the principal and transfer the other half to the investment account.  You can get very detailed and specific for how you want to play with the timing of the funds and the transfer, but I would just keep it simple and straightforward.  

    Alternatively, you could do a Roth Conversion and convert your IRA account to a Roth.  A Roth does not have any RMD's so you could resolve the issue that way.  The downside to a Roth conversion is that you would have to pay taxes on your entire IRA account at the time of conversion (instead of paying taxes on the account in chunks, as you take RMDs, if you keep the IRA as is).  Note also that you would have to wait 5 years from the Roth conversion to be able to withdraw funds from that account tax-free.

    Another alternative could be a qualified longevity annuity contract (QLAC), which allows people to delay taking RMD's until the age of 85.  However, I have not researched this option and I am leery of structured investment products in general.

    If you have other questions about this, I would be more than happy to talk to you about it further.  You can email me directly at

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