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Consider an RMD as part of your total nest egg

Even if you reinvest them in a taxable

Even if you reinvest them in a taxable account, you should consider your RMDs as part of your total nest egg. Credit: iStock

This column is the second of two parts. Click here to read the first part.

I'll deposit the required minimum distributions from my retirement accounts into a taxable account because I don't need them for living expenses. What investment should I choose?


That depends on how the rest of your money is invested, on how soon you'll spend these required minimum distributions (commonly referred to as RMDs), and on your risk tolerance.

One option is to reinvest RMDs in a way that maintains your target investment mix. Let's say you retired with 50 percent of your savings in stocks, 40 percent in bonds and 10 percent in cash, but now, thanks to market performance and the removal of your RMD, your nest egg is 57 percent in stocks, 38 percent in bonds and 5 percent in cash. Putting your RMD into taxable bond and money market funds helps restore your original combination.

But if your 401(k) is mostly invested in bond funds, and your living expenses are comfortably covered by Social Security and a pension, you may want to consider investing RMDs in a taxable stock fund for long-term growth. A healthy 70-year-old can live well into her 90s — and even if inflation averages just 2 percent a year, in 10 years, the value of a dollar shrinks almost 20 percent. Historically, stocks have outpaced long-term inflation better than other investments.

If stocks sound too aggressive, consider a balanced fund. Balanced funds invest in both stocks and bonds. A balanced fund typically rises less than pure stock funds in bull markets but loses less in bear markets. Balanced funds like Vanguard Wellington or Vanguard Star, which have fine track records and low fees, are a good choice for retirees with a moderate tolerance for risk, says Ron Roge, a Bohemia financial planner.

THE BOTTOM LINE Even if you reinvest them in a taxable account, you should consider your RMDs as part of your total nest egg.


TO ASK THE EXPERT Send questions to Ask the Expert/Act 2, Newsday Newsroom, 235 Pinelawn Rd., Melville, NY 11747-4226, or email Include your name, address and phone number. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own advisers for your specific needs.

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