Don't Need Your Required Minimum Distribution (RMD) Right Now? What Can You Do With the Cash Influx?

If it's time to take a required minimum distribution (RMD) and you find that you don't need the money to pay everyday expenses, that is a fortunate situation to be in. Many retirees need every cent of these annual withdrawals to pay the bills.

Though you don't need the money, you can still make the best of the situation. Here are five ideas for how you can put your RMD to use.

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1. Rid yourself of high-interest debt

One of your first priorities should be paying down high-interest debt, such as credit card balances. The tidy minimum monthly payments can disguise just how much money you're losing to interest, so if you have high-interest debt eating into your budget, now is the time to get rid of it.

Let's imagine you have three credit cards, each with a relatively small balance. For the sake of simplicity, we'll assume each credit card carries an interest rate of 19%. You may find yourself thinking, "It's not so bad. Not only are the balances pretty low, but with national average rates at nearly 23%, my APR doesn't seem that high."

Table by author. Data source: Calculator.net

In this scenario, it would cost $8,500 to rid yourself of these three debts entirely. Even if you can easily afford to cover the minimum monthly payments totaling $255, paying off the balances with your RMD effectively saves you $3,679 that would have otherwise gone into the pockets of the credit card companies.

2. Donate to a qualified charity

If you're 70 1/2 or older and the RMD you're required to take is from a rollover, inherited, or traditional IRA, you have the option of having it sent directly from the plan administrator to a qualified charity through a qualified charitable distribution (QCD). Here are several advantages:

• If you're single, you can donate up to $108,000. If you're married, you can each donate up to that amount, for a total of $216,000.
• Between the ages 70 1/2 and 73, the amount donated is excluded from your taxable income, which can help lower your adjusted gross income (AGI) and potentially reduce Medicare premium surcharges.
• Once you've turned 73, the amount donated also counts toward IRS-required RMDs.

3. Plump your emergency fund

The fact you're in a position to live without RMDs means you may already have an emergency fund with three to six months' worth of living expenses in it. If not, now is a great time to set one up.

Thinking even more strategically, you can also consider an emergency account specifically for a bear market or market downturn. When the market is down, the value of your individual assets may also be depressed. If that's the case, you must typically sell more of those assets to cover your expenses. But if you have a cash or cash equivalent account to draw from instead, you can preserve your capital and leave your retirement accounts largely untouched with the exception of your RMDs.

Another advantage of an emergency fund set aside specifically for market downturns is you will have money available to opportunistically buy high-quality investments while prices are low.

4. Make home repairs

If you're like most Americans, your home is one of your most valuable assets. As such, it pays to make sure it's in tip-top shape. If there are any repairs or improvements you've been putting off, such as new gutters, a damaged driveway, or leaking roof, your RMD can go toward these renovations.

By doing so, you either increase the value of your property, or you prevent small fixes from turning into major repairs down the road.

5. Do something you've always wanted to do

Chances are, you've spent decades saving and planning for retirement. It's perfectly fine to reward yourself for all your hard work. For example, you could travel, buy a new car, turn your hobby into a business, or go back to school. It's all about fulfilling long-held dreams.

Sometimes, the hardest person to spoil is yourself, and an unneeded RMD can be the perfect opportunity to do so.