Worried About RMDs in Retirement? 3 Key Moves to Lower the Hassle Factors.

If you have retirement savings in a traditional IRA or 401(k), you'll be subject to required minimum distributions (RMDs) once you turn 73 or 75, depending on your year of birth. And those RMDs could be a hassle, to say the least.

Not only are RMDs a taxable event, but those forced withdrawals could impact other aspects of your retirement finances. They could lead to a scenario where you're taxed on your Social Security benefits or you're forced to pay more for Medicare.

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The good news? With a solid plan, you can minimize the annoyance of RMDs. Here are some moves that could lend to that goal.

1. Convert a portion of your savings to a Roth IRA

Just because you've retired with funds in a traditional IRA or 401(k) doesn't mean a Roth IRA is off the table. If you do a Roth conversion, you'll be able to exempt some or all of your savings from RMDs.

Of course, Roth conversions do trigger taxes, so moving a giant balance into a Roth IRA isn't something you'll want to do in a short period of time. If you convert a $1.2 million 401(k) to a Roth IRA in one year, for example, you'll pay a very high rate of tax on most of that conversion, if not all of it, depending on what outside income you have.

A better idea is to spread a large Roth conversion across multiple tax years. And if you don't manage to convert all of your savings to a Roth, that's OK, too. Moving even some funds over could lower your RMDs.

2. Look at QCDs if you can afford to be charitable

There's a benefit to keeping some of your long-term savings in a traditional IRA. If you're inclined to be charitable, you can use qualified charitable distributions (QCDs) to satisfy your RMDs while avoiding an increase in your tax liability.

QCDs allow you to transfer donations from an IRA to a registered charity directly. Doing so allows you to bypass taxes, which is why it could actually pay not to do a full Roth conversion. There's no sense in moving funds you'd like to give to charity to a Roth, since you'll have to pay conversion taxes.

3. Figure out how to put those forced withdrawals to good use

If you can't avoid RMDs completely, figure out a way they can enhance your life or lend to other goals. If you're able to cover your basic living costs on Social Security alone, your RMDs might provide an opportunity for you to travel or treat yourself to other enjoyable experiences, like a theater subscription.

If you really don't want to spend your RMDs, another option is to take the money and move it into a taxable brokerage account you invest in. A taxable brokerage account means paying taxes on dividend payments and capital gains every year they're applicable. But there's a huge benefit to enjoy from an estate planning perspective.

If you leave your taxable brokerage account to your heirs, they'll inherit those assets on a stepped-up basis. This means the value of those assets is reset to their market price on the day of your passing. That effectively wipes out prior capital gains, allowing your loved ones to enjoy a greater benefit.

RMDs can be a hassle in retirement if you don't plan for them well. But if you're strategic with Roth conversions and charitable giving, you may find that you're able to reduce the tax blow. And you may also find that you appreciate having those forced withdrawals for extra spending money or an opportunity to set your heirs up in the future.

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