What to do with IRA distributions not needed


Dryer sheet wannabe
Aug 20, 2004
I start taking IRA distributions this year and will not need the income for the next couple of years, so I'm looking at alternatives on what to do with the cash. I'm still earning income so I thought I could use $3500 this year and open a Roth IRA. I also have a Vanguard Variable Annuity that I could add some funds to that. Other than those ideas, I would just put the funds into my taxable account and invest in dividend paying stocks through an ETF like DVY, closed end Ohio muny bond fund and a stock fund like HSGFX. What do you think of these ideas? Any other ideas or thoughts would be appreciated.
Why are you starting IRA distributions when you don't need the money? Are you 70 1/2 and forced to withdraw? Your age and general situation may help get better answers.
Heck of a problem huh?  Having too much $ is the kind of trouble that I would like to find myself in too. 8)

If you are 701/2  and need to take out RMD, take $3500 out and stick it in the Vanguard Total Stock Market Fund- Low ER (.20) and tax efficient.

But like Bigmoneyjim says, why take it out unless you are forced to by IRS rules?
Age 70 1/2 and still working? This is the early Retirement forum :eek:
I-Bonds would give you tax deferral and inflation
protection. Not a bad combination.


I just ran some future value numbers to see what I would have at age 70 if I continued working and saving at the rate I have been doing for the past 16 years. Using a 6% rate of return, I would have $8,009,004. Even discounted for inflation, the amount would be pretty big. Of course, I do this only for my own amusement because I wouldn't work to age 70 or possibly even age 60 even if you gave me that money. I see too many senior citizens that work their whole lives and have their whole mindset on saving without knowing what they are saving for. Then they get to the point where health problems prevent them from leaving their house or community. Life is way too short and it's a shame too many people waste it by working at jobs they don't like. I figure, once I'm financially independent in 4 years, I'll give my workload to some other young person who can use it to build toward ER.
sorry, yes, I will be 70 1/2 this year.
Another way you can find yourself with a RMD is with an IRA inherited from a benefactor who was subject to RMD, as I have.

Chuck-Lyn, I bonds seem like on of the best ideas I've heard. Perhaps I failed to mention that if I open a Roth with $3500, I will have another $10,000+ to invest elsewhere. Perhaps I should buy something like DVY and HSGFX in the Roth account and the I Bonds in the taxable account. does the Vanguard Variable annuity make sense. I realize appreciation will come out at ordinary tax rates but if I hold off I should be in a lower tax bracket by the time I annuitize, if I don't kick off, in which case my wife will get the account.

I don't think variable annuities are appropriate for
age 70 ........ you have to hold it a long time to
overcome the insurance load. I think you would
be better off buying Vanguard's Total Stock Market
Index fund in your taxable account plus I-bonds to
give you your desired stock/bond mix. The TSM fund
is very tax efficient and has very low expenses.
This would give you more flexibility for emergencies
than tying your money up in an annuity. If you are
in a high tax bracket, you might consider a short
to intermediate term tax exempt bond fund. They
will track inflation just about as well as I-bonds.

Another possibility would be to consider one of Vanguard's balanced funds like Balanced Index,
Lifestrategy, Target Retirement, STAR, Wellington
or Wellesley. The problem with these funds in a
taxable account is that they are not very tax
efficient. I use Target Retirement 2025 in my
taxable account because I am in a low tax bracket
and I like the automatic rebalancing feature. It
has a 60/40 stock/bond mix using 48% TSM, 12%
international and 40% Total Bond Index.

BTW, I just turned 70 on May 31, so hang in there pard.


Charlie, Happy Birthday! Mine was 4/16.

I've looked at Vanguard Total Stock Market Index before and it always bothered me to see losses in 2000, 2001, and 2002. I've been happy with Hussman Strategic Growth because he protects principal with hedgeing. the fund is a bit expensive but he has been lowering expenses. I also tend to prefer active management rather than indexes. I appreciate your comments.
I'll look into the tax exempt funds as well as I bonds. What I like about i bonds is the deferral of interest and taxes until I am in a lower tax bracket. Stay well!
I've looked at Vanguard Total Stock Market Index before and it always bothered me to see losses in 2000, 2001, and 2002. [...] I also tend to prefer active management rather than indexes.
Well, since the stock market as a whole lost in 2000, 2001 and 2002 the indexes will follow along. As for active management, you'll have to find someone who you believe can outperform the market by the difference in fees (1% - 2% per year in many cases) over a period of time to make it a better investment than an index fund. I don't have that confidence in anybody, although I'll admit I was partially invested in the managed PRIMECAP fund for several years and was reluctant to get out of it because it had been so good for me. I finally convinced myself I don't believe they can outperform the market by the difference in fees over the course of my investment timeline and moved the money to the S&P 500 index. (The reason I bought into it in the first place was a misunderstanding: I thought it was smaller-cap stocks, but it turned out it was mostly large cap stocks.)

If I did it today I'd probably chose Total Stock Market instead, but I dont' see a compelling reason to move from S&P 500 to TSM especially since Vanguard has the lower expense Admiral shares which I can get sooner if I don't move my money around.
Top Bottom