Are You Reinvesting Your RMD as a Retiree? What Do You Need to Know?

RMDs are mandatory withdrawals from retirement accounts that must start by April 1 of the year ing your 73rd or 75th birthday

Failure to take an RMD can lead to a hefty tax penalty

But what if you don't need that money immediately and want to put it somewhere it can continue growing

If you're re your RMDs, here's what you need to know

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The first step is to consider cash flow When considering re, double-check your annual budget to ensure you're not cutting yourself short

Don't forget to factor in irregular expenses, HOA fees, insurance premiums, and vehicle maintenance, perty taxes, and pet expenses

You'll bably owe taxes Uncle Sam wants his piece of the pie, no matter where or how you reinvest an RMD

Because you didn't pay taxes on the income when it was initially invested, it will be due in the tax year the RMD is made, even if you roll it directly over to another investment account

Options are fairly limitless Maybe you've had more time to study investment options or become more conservative now that you're not earning a regular income

In either case, your options are wide open

Your money can go wherever you believe will best serve your needs

For example, you can reinvest funds into mutual funds, stocks, bonds, or taxable brokerage accounts, where the money can grow and vide dividend income

If you don't have one already, now may be a good time to meet with a retirement advisor who can help you understand each option's s and cons

The important thing is to carefully consider your investment goals, risk tolerance, and how long you predict the funds will remain in the new account

Diversification still matters Even if you can't foresee a day when you'll need the money you're re, tecting your assets by diversifying the new investments is essential

Diversification is key to helping manage portfolio risks

Many factors, including an economic recession, geopolitical tensions, and rising interest rates, can trigger bear

While some investors dump stocks when things start to go south, hanging in there can be advantageous

A bear market gives you the opportunity to buy low and watch your assets grow in value as the market recovers

One note bear during retirement: Consider stowing enough cash in a separate account to cover living expenses so you aren't tempted to sell assets while portfolio values are at rock bottom

The goal is to take advantage of low prices to plump your portfolio while you can

The fact that you've decided to reinvest RMDs indicates that you don't believe you'll need the money to cover bills

However, an unexpected issue, such as a higher-than-expected medical expense or natural disaster, could make it challenging to stick with the plan, and having an alternate source of funds could help

Treat your new investments just as you treated your old Anything you reinvest in needs a little babysitting

For a long-term investor, that means regularly reviewing your new strategy to ensure it continues to meet your needs

For example, if you decide to go for broke and make riskier investments, switching that strategy is OK if you find it's not working for you

Consider yourself fortunate if you can reinvest an RMD rather than use it to pay bills

Once you've made the tough decisions, you can sit back and (hopefully) watch your money grow

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