Don't need your required minimum distribution just yet? What to do with the cash influx.
Don't need your required minimum distribution just yet? What to do with the cash influx.
Show Caption
Hide Caption
How are tariffs and your 401(k) retirement savings intertwined?
Experts say a rise in tariffs can lead to several factors that impact your retirement savings.
For many retirees, 73 is the magic age – the time they must begin withdrawing required minimum distributions (RMDs) from their retirement accounts. Retirees born in 1960 or later have until 75 to start taking RMDs. However, what do you do if you don't need the money just yet? Here are five ideas.
1. Reinvest
There's no rule saying you can't withdraw funds from your retirement accounts and immediately reinvest them elsewhere. Here are some popular options:
Dividend stocks and ETFs
Real estate investments
Municipal bonds
Taxable brokerage accounts
2. Make a qualified charitable contribution (QCD)
If you're 70-and-a-half or older and must take an RMD from a traditional individual retirement account (IRA), you can arrange for it to be directly donated to a qualified 501(c)(3) organization of your choice. Not only will you feel good about your decision, but you'll also:
Enjoy a tax break since the amount donated is excluded from taxable income.
Fulfill some or all of your RMD requirements for the year.
3. Convert to a Roth IRA
If you're withdrawing money from a pre-tax retirement account, like a 401(k), consider the benefits of converting that money to a Roth IRA. It's important to remember that you'll need to pay taxes on any pre-tax withdrawals, and Roth IRA contributions are subject to income limits. Still, you may find the benefits outweigh those two points. There are several benefits associated with converting cash from a pre-tax account to a Roth IRA, including:
Your withdrawals from a Roth IRA are tax-free.
Roth IRAs have no RMDs.
Roth IRAs can be passed to heirs tax-free.
Age for Social Security benefits: What's retirement age for full Social Security benefits? It's not the same for everyone.
4. Purchase life insurance
It's easy to think of life insurance as something you only need during working years when the loss of your income would be detrimental to the people you love. However, have you considered how a life insurance policy might come in handy for your loved ones after you die? Here are some of the reasons retirees purchase life insurance:
Cover final expenses
Pay off debt after your death
Leave money to family or charity
Help beneficiaries pay inheritance taxes or any other expense they may run into after you're gone
5. Plan for the worst
As well-established as you may be in retirement, you never know what's around the corner. It may be something as simple as a storm that blows through your area and takes part of your roof or something as scary as a serious medical issue. In either case, you'll need money. Unless you have a large emergency savings account, consider using spare RMD dollars to stuff into that emergency fund.
Who knows? You may get several years down the road, realize you have far more than necessary in emergency savings, and make a new plan for the cash. In the meantime, you know you've got yourself (and whatever may come your way) covered.
Having more money than you need is a luxury. Take all the time you need to determine where your money can do the greatest good for you and those you care about around you.
The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
The $
22,924 Social Security bonus most retirees completely overlook
Offer from the Motley Fool: If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets"could help ensure a boost in your retirement income.
One easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. JoinStock Advisorto learn more about these strategies.
View the "Social Security secrets" »
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
43 minutes ago
- Yahoo
Here's Why I Expect Less Money Out of Social Security (and It's Not the Reason You Think)
Social Security is at risk of cutting benefits in the future. While lawmakers will probably try to avoid sweeping cuts, they may not be able to. The reason I expect less out of Social Security has nothing to do with benefit cuts and everything to do with my filing age. The $23,760 Social Security bonus most retirees completely overlook › There are rumors flying that Social Security is running out of money. And they're not exactly true, but also not exactly false. Social Security is not in danger of running out of money completely. But in the coming years, it expects to owe more in benefits than it collects in revenue. A big part of the reason boils down to the fact that baby boomers are retiring in masses. Social Security's main funding source is payroll taxes, so a shrinking workforce means the program is looking at a revenue shortfall. Social Security can tap its trust funds for money to keep up with benefits for a good number of years. But once those trust funds are emptied, Social Security may have to cut benefits broadly unless lawmakers come up with a solution that prevents that. And to be clear, lawmakers will probably try their best to prevent Social Security cuts to avoid a mass poverty crisis among older Americans. But there's no guarantee they'll be successful, which is why benefit cuts are something every worker today should brace for. But while you may have to resign yourself to getting less money out of Social Security due to broad benefit cuts, I'm resigning myself to smaller monthly benefits for a completely different reason. And frankly, it's a situation that's completely my fault. Sweeping benefit cuts could easily result in smaller Social Security checks each month for me. And that's not something I can control. What I can control is when I file for benefits. And right now, I'm learning toward claiming Social Security at 62. The thing is, though, I'm not entitled to my complete monthly Social Security benefits without a reduction until age 67, which is full retirement age for anyone born in 1960 or later. Filing for Social Security at 62 will reduce my monthly benefits by 30% off the bat. Now, you may be wondering, "Why on Earth would you do that?" And to be fair, there was a time when I never would've considered claiming Social Security so early. Then I saw my father-in-law pass away earlier this year out of the blue. He was a healthy man in his 70s who ate well and ran marathons. It was a wake-up call to not put off the things you've always wanted to do -- and to not take a gamble on Social Security. I actually have no idea when my father-in-law claimed Social Security. But based on when he passed away, an early filing at 62 probably would've put the most amount of money in his pocket on a lifetime basis. It made me realize that filing for Social Security at 62 could be the right choice for me. While doing so means shrinking my monthly benefits for life, I think it's a move that could give me more peace of mind. And you might feel the same. I've flip-flopped on my Social Security filing age through the years, so my decision to sign up at 62 isn't set in stone. Rather, it represents where I'm at today. This decision is also based on the fact that I've been saving aggressively for retirement in the hopes that Social Security will be a secondary income source for me, not a primary one. If you're in a different boat, and you'll truly need those monthly benefits to cover your basic living costs, then you may want to think twice about slashing them on a monthly basis -- especially with the potential for broad cuts to happen regardless of when you sign up. But as of now, I like the idea of getting my money as early as possible, just in case. I have no idea if benefit cuts will actually come to be. And I realize that the combination of an early filing and broad cuts could leave me with a pretty tiny Social Security check at the end of the day. But it's a decision that works for me based on my anticipated needs and savings, so I'm sticking with it -- at least for now. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Here's Why I Expect Less Money Out of Social Security (and It's Not the Reason You Think) was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
43 minutes ago
- Yahoo
I'm Pretty Confident in These 2 Predictions About Social Security's 2026 Cost-of-Living Adjustment (COLA)
The Social Security Administration will announce the official 2026 cost-of-living adjustment (COLA) in October. It likely won't exceed the 2.5% COLA seniors received in 2025. It might be less than you'd hoped for, which could force you to make some changes to your budget. The $23,760 Social Security bonus most retirees completely overlook › We're about four months away from the official Social Security 2026 cost-of-living adjustment (COLA) announcement, but that probably hasn't stopped you from trying to guess what your checks will look like next year. That makes sense, especially if you don't have a lot of personal savings to supplement your checks. Predictions are already flying around, and now I'm throwing my thoughts out there, too. Here are my two predictions for the 2026 Social Security COLA that I feel pretty strongly about. The 2025 Social Security COLA came in at 2.5%, making it the smallest COLA since 2021. Based on estimates from The Senior Citizens League (TSCL), a nonpartisan senior group, it looks like the 2026 COLA will land in a similar range. Its latest prediction from May 2025 was a 2.4% COLA, up slightly from the 2.2% and 2.3% it had predicted in previous months. There's still a small chance this could change, though. COLAs are based on the difference in average third-quarter inflation data from one year to the next. If there's an inflation spike in the coming months, it could push the COLA higher than current estimates. However, larger COLAs don't necessarily translate into a better quality of life. The extra money will go toward covering the higher cost of goods and services you'll pay on everything. A 2.4% COLA would raise the average Social Security benefit from $2,002 in May 2025 to $2,050 -- a $48 increase. It's better than nothing, but it probably won't be enough to seriously improve your living situation and may contribute to the program's continued loss of buying power. The average Social Security check today buys 20% less than what the average check bought in 2010, according to TSCL. A 2.4% COLA could exacerbate this issue. In the near term, the best way for seniors to handle this is to plan to cover their expenses in other ways. This could mean relying more heavily on personal savings or working a part-time job. You may also qualify for government benefits, like Supplemental Security Income (SSI), to help you cover what your Social Security checks won't. In the long term, COLAs could become more satisfactory, particularly if the government decides to base them on the Consumer Price Index for the Elderly (CPI-E) instead of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) that it uses now to calculate inflation. Using the CPI-E would result in larger COLAs for seniors in most years because this index better reflects the spending habits of seniors. There currently aren't any plans to make this change, but it's an idea legislators have raised in the past and could come up again. For now, all we can do is take things one step at a time. Once the Social Security Administration announces the official 2026 COLA, it'll be time to start examining your budget for next year to figure out what you'll need to do to make ends meet. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. I'm Pretty Confident in These 2 Predictions About Social Security's 2026 Cost-of-Living Adjustment (COLA) was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Forbes
3 hours ago
- Forbes
What You Need To Know About A Roth IRA Today
What you need to know about the ROTH IRA today to help avoid running out of money in retirement. Roth IRAs have been around for more than 20 years, and many people may have forgotten or never learned about how valuable they can be. Even small contributions over time can translate into a substantial amount of tax-free income throughout your retirement. Ultra-high-net-worth individuals may wish for more tax-free income potential, but they often earn too much income to be able to contribute directly to a Roth IRA. For the rest of you, don't miss out on the valuable tax-planning opportunities available with a Roth IRA. The Roth IRA is a type of retirement account. Unlike a traditional IRA or 401(k), you will not receive a tax deduction when you make contributions, but your money will grow tax-free. It can be withdrawn tax-free during retirement, assuming you follow a few Roth IRA rules. With an ever-expanding federal deficit, locking in more tax-free income options in the future could be the difference between running out of money in retirement and maintaining financial freedom as you age. Hey, procrastinators. You can still contribute to a Roth IRA when you are filing your taxes for the previous year. The deadline for most California residents to file their 2024 taxes is October 15, meaning you can still potentially open and fund a Roth IRA for last year. The sooner your Roth IRA contribution is made, the further into the future your potential investment earnings will be sheltered from taxation. What's better than a huge income in retirement? A huge tax-free retirement income stream. For 2025, if you are married and filing jointly, each spouse can make a full $7,000 Roth IRA contribution if they have an AGI (adjusted gross income) of less than $236,000. For singles, the number is slightly lower at $150,000. Note that a marriage penalty is in effect here. I'm just saying. If your income is close to the threshold limits above, consider saving the $7,000 throughout the year into a regular investment account. Then, use those funds to contribute the maximum amount allowed to a Roth IRA when filing taxes. I find it is often easier to come up with money over a year's time versus scrapping together a large lump sum at tax time. There are two ways a Roth IRA gets better the longer you have it. First, there is an allowable catch-up contribution of $1,000 per year for those who have reached 50 years old—bringing the total contribution to $8,000 per year. Secondly, the longer you hold a Roth, the more you can contribute over time. The more you contribute and the longer you leave the funds in the Roth IRA, the more time compounding interest has to expand your account values. Even if your spouse doesn't have earned income, you may still be able to open a Spousal Roth IRA. Whether your life partner is a stay-at-home parent or just between jobs, a spousal contribution will allow your household to contribute to the non-earning spouse. This, of course, assumes you qualify for contributions based on the aforementioned household income limits. For those new to investing and saving for retirement, tying up your money until you retire may be intimidating. You may need access to this money in case of an emergency. Roth IRA owners can withdraw their contributions after they have been in the account for five years, for any reason, without owing taxes or penalties. I mention this as a nice, friendly kick in the butt to make sure you get started saving NOW. There is no excuse for not planning for the future. I suggest ignoring the benefit of having easy access to your money because if you use this account as a piggy bank, you will likely never accumulate enough wealth to achieve financial independence, let alone maintain a basic standard of living in retirement. Bottom line – you can touch the money, but don't. To have full access to your "tax-free withdrawal," you need to fulfill the five-year rule. This rule means you can't withdraw your earnings, tax-free, without owing taxes for at least five years from the beginning of the tax year for which you made your first Roth IRA contribution. This applies even if you are older than 59.5. This is not some obscure tax loophole for the super-rich. For once, there is a tax benefit exclusively for those in the lower income tax brackets. As I mentioned above, you don't get a tax deduction when you contribute to a Roth IRA, but you also don't have to pay taxes when you make withdrawals in retirement. There is an additional tax benefit for low-income workers who are savvy enough to make Roth IRA contributions. This bonus comes in the form of the saver's credit. If, in 2025, you make less than $39,500, single, or $79,000 as a married couple, you could potentially receive a tax credit for 10-50% of your contributions to a Roth IRA. This credit is a dollar-for-dollar reduction of the taxes you owe. For those who don't owe taxes, you can receive the credit as a refund. Put more plainly, you could potentially get a tax credit for your Roth IRA contributions and still make withdrawals in the future tax-free. Just for illustration, if you were to contribute $7,000 to a Roth IRA from the age of 22 until 70, how much money do you think you would have? You would have contributed $336,000, which is not a small amount of money. Assuming a 10% annual return, your Roth IRA could potentially be worth $6,721,000. Keep in mind this money can be withdrawn tax-free. If this isn't motivation to start a Roth IRA today, I don't know what is. The earlier you start investing for retirement, the more likely you are to become a Roth IRA millionaire. If you are earning more than, say, $70,000 and aren't already independently wealthy, you will need to be saving more than the Roth IRA contribution limits to reach financial freedom. See if your employer offers a Roth 401(k) option, which will allow you to contribute $23,500 in 2025. You may also receive employer matching contributions and be eligible for catch-up contributions if you are age 50+ or the newer additional catch-up contribution for those just age 60-63. To contribute even more to a Roth 401(k), consider the Mega Back Door Roth strategy. This could push your Roth contributions each year up to $70,000. This is before any additional Roth catch-up contributions you may be eligible for. Read more about the Mega Back Door Roth Tax-Free Income Strategy Here. There is no better day than today to get started on the road to financial freedom. Hopefully, you are already working with a fiduciary certified financial planner to help develop a plan to make sure you are on track for your various financial goals. Part of that plan should be to help ensure you are paying the least amount of taxes over your lifetime. I don't know when taxes will increase, but they will eventually have to rise, and your Roth IRA accounts can help you mitigate the impact of these future tax hikes.
