3 Money-Smart Ways to Use Your RMDs
Put the money you are required to take out of retirement accounts back to work.
Some would call it a nice problem to have. But for many retirees, it's a problem nonetheless to figure out what to do with required minimum distributions from an IRA when you don't need the money right away but want to preserve some of the IRA's tax advantages. Once you turn 70 1/2, you must take annual distributions based on the value of your account and your life expectancy. Some options to consider:
Reinvest. Municipal bonds or muni bond funds will provide income that's usually exempt from federal taxes and, in some cases, state and local taxes, too.
Give to charity. Retirees can transfer up to $100,000 from their IRAs to charity. The tax-free transfers would count as your RMD.
Pay a grandchild's education costs. Fund a 529 savings account -- in some states you'll qualify for a deduction. If you fund an education savings account instead, you won't get an up-front break. But future earnings are tax-free, and the money can be used for college costs or K–12 private school.