3 Reasons I'm Not Upset Over Having to Take RMDs

For years, I've been telling myself to start saving for retirement in a Roth account. I've been funding a traditional 401(k) for a long time now, and it's important to have tax diversification.

But the reality is that the math right now supports traditional retirement plan contributions more so than a Roth account. I need the up-front tax break to lower my IRS burden, and with a Roth account, I give that up.

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I do hope to do a partial Roth conversion at some point down the line so that my entire retirement nest egg isn't sitting in a traditional 401(k). But I may not be able to move all of my money into a Roth IRA before required minimum distributions, or RMDs, start.

For some people, RMDs are a highly undesirable thing. And I can see why. Those forced withdrawals add to your taxes at a time when you may not even need the money.

But I'm not particularly bothered by the idea of having to take RMDs. Here are a few reasons why.

1. I don't have to spend the money

One big misconception about RMDs is that if you don't need the money, those forced withdrawals are a waste. The reality, though, is that the IRS isn't forcing you to spend your RMDs.

The only requirement on your part is to get your RMD out of your traditional IRA or 401(k) plan each year. As long as you take that withdrawal on time, the IRS doesn't care if you use the funds to buy stocks, start a bond ladder, or purchase a sailboat.

The way I see it, if I don't end up needing to spend my RMDs, I won't. I can use the money for other investments or keep my RMDs in cash for a rainy day.

2. I can use them to support charities I care about

Roth IRAs and 401(k)s are nice to have in retirement because your withdrawals are tax free. But if you're planning to give to charity, that could actually be a bit of a problem -- namely, because you miss out on a big tax break that only comes with a traditional IRA.

Traditional IRAs allow you to donate to charities directly through qualified charitable distributions, or QCDs. The nice thing about QCDs is that they satisfy your RMDs without resulting in a tax bill for you.

I hope to be in a position to donate to charity in retirement. And if so, rather than stress about my RMDs, I can just give the money away to causes I care about.

3. They might force me to splurge

Even though I've been a full-fledged adult for many years, my parents still like to send a gift for my birthday. But recently, instead of mailing checks, they've started sending gift cards to places I enjoy -- local restaurants, coffee chains, and so forth.

The reason they stopped sending checks is that I admitted to taking the money and putting it into my bank account from which I pay bills without necessarily earmarking those funds for something fun. Now, they send gift cards so I'm forced to treat myself.

I sort of see RMDs the same way. Even though I'd probably prefer to have complete control over my savings, removing a certain amount of money each year gives me an opportunity to splurge on things I might otherwise skip. Those could be big things, like upgraded vacations, or small things, like tasty purchases at farmers markets.

Don't overstress about RMDs

If you have your money in a traditional retirement plan that will eventually force you to take RMDs, that may be a point of stress. But it doesn't have to be.

Not only are Roth conversions an option, but if you don't manage to move all of your money over, you can still make the best of RMDs by reinvesting the money, donating to charity, or actually spending some of your hard-earned savings on yourself.

That said, RMDs are an important thing to plan for, since they could have implications beyond a higher tax bill. If you're on Medicare, for example, a large RMD could increase your income to the point where you're charged extra for your Part B and Part D premiums.

But all told, RMDs aren't the end of the world. If you know what to expect, you can simply make them a part of your retirement income strategy.

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