IRA Required Minimum Distributions: What You Can Do

Reinvesting Your Required Minimum Distribution

From The Slott Report: 

You have inherited an IRA or you have turned age 70 ½ and now have to take required distributions (RMDs). But you don’t need (a relative term of course) the money and you would rather not pay the tax on money you don’t need. So what can you do?  Many people ask if they can “reinvest” their RMD. Can they put it back into an IRA or, even better, into a Roth IRA?

The answer is “No.” 

There was a tax deduction given for the funds that went into an IRA in the first place and the government wants its tax back. That is why we have required distributions in the first place. 

In addition, there are requirements to be met before you can make a contribution to an IRA or a Roth IRA. First of all, the maximum you can contribute for 2014 is $5,500 (for those age 50 or older this year, you can contribute an additional $1,000). You also have to have “compensation,” which is generally earned income (the safe harbor is W-2 income). That eliminates most people who are over age 70 ½. Individuals cannot make traditional IRA contributions beginning in the year they turn 70 ½, so that eliminates those over 70 ½ who do have earned income. The age limitation does not apply to Roth IRAs, but there are income limits for making Roth IRA contributions.

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Davis & Hodgdon Associates has been assisting individuals and businesses in the Burlington Vermont Metro area for more than 20 years. If you have any questions or concerns please feel free to call 802.878.1963 or email [email protected].

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