The IRS is making me withdraw money I don't need. What do people actually do with it once it's out?

New problem, and I'm aware it's a fortunate one, so nobody needs to tell me that.

I turned 73 and started required withdrawals this year, which I've already whined about in another thread. What I didn't anticipate is the part after the withdrawal. My pension and Social Security cover what my wife and I actually spend. We are not big spenders, we have been the same two people in the same house for forty years. So this money comes out, gets taxed, and then sits in the checking account looking at me, and I find I have no plan for it at all.

Right now it's just accumulating in savings earning very little, which even I can tell is silly. What do people DO with this? Is putting it back into investments allowed, or does the IRS consider that cheating somehow? And is there any way to make the withdrawal itself smaller or less taxable, or is that ship sailed at 73?

I'm five years out from this and I'll admit I assumed the answer was "put it in a Roth," which I gather is not allowed. Would like that confirmed by someone who knows, because it's the kind of thing I'd have tried.

I have been in exactly your position for years, Richard, and my answer is unglamorous: it goes into a plain brokerage account and gets invested more or less the way it was before it left the IRA. Same money, same investments, different envelope, and the taxes are handled differently from that point on. It stopped feeling like a problem once I stopped thinking of it as a withdrawal and started thinking of it as a transfer that the government taxes on the way through.

The other thing I do, and this is the part I like: I have my tax withheld directly from the withdrawal itself rather than sending quarterly payments. My preparer suggested it and it took one phone call to the provider. Fewer dates to remember at 78.

richard1953 said:

Is putting it back into investments allowed, or does the IRS consider that cheating somehow

Reinvesting is completely allowed, Bill's instinct is the one that isn't, and there is one option Richard hasn't been told about that's worth knowing before December.

Taking them in order. Once a required minimum distribution has been taken and taxed, the money is ordinary money and you can do anything you like with it, including investing it in exactly the same funds inside a regular taxable brokerage account, which is what Carolyn described. What you cannot do is roll a required distribution into an IRA or convert it to a Roth. The required amount has to come out and stay out; only amounts above it are eligible for conversion, which is why people who want conversions do them in the years BEFORE required distributions start, as described in Roth conversions. Bill, that's your answer, and it's a common assumption.

The option worth knowing: a qualified charitable distribution. If you're at least 70 and a half, you can have your IRA custodian send money directly from the IRA to a qualifying charity. It counts toward your required distribution for the year, and it never appears as taxable income on your return, which is different and usually better than withdrawing and then donating, because it also keeps your income lower for things that watch it, including the Medicare surcharge two years later. There's an annual cap, currently a six-figure amount that's indexed each year, and the rules are specific: it has to go directly from the IRA to the charity, and it applies to IRAs rather than to workplace plans. If you already give to a church or a cause, this converts giving you're doing anyway into a smaller tax bill.

Two smaller points. Carolyn's withholding-from-the-distribution approach is a genuinely useful piece of housekeeping. And keeping the money invested rather than in savings is a question about your risk and your timeline, not a question with one right answer, since making your money last at 73 looks different from doing it at 63.

Whether a charitable distribution fits your return, and how much, is a conversation for your tax professional with your actual numbers in front of them. Mine is a general description of how the rules work, not a recommendation for your household.

Well. We give to the same two places every year, out of checking, after tax, and have done since the nineties. Nobody has ever mentioned there was a version of that which came straight out of the IRA. I am mildly annoyed on behalf of my last three tax returns.

Bookmarking this for my mother, who is 81 and has the same problem and has been solving it by giving my brother money in amounts she picks at random. She would love the charity version.

This thread is quietly an argument for doing the conversion work early. Richard's got good options at 73 but they're all versions of managing a bill he can't cancel. At 63 I can still shrink the bill. Feels like the same fork I was staring at in June from the other side.