An alternative would be to use the excess to pay the taxes on a partial Roth IRA conversion. By doing so, you would decrease the money in your Traditional retirement accounts, which would decrease the amount subject to future RMDs.
The amounts will vary based on your personal situation, but say you have a $20,000 RMD but only need $15,000 to cover your costs. That $5,000 excess might be enough to cover the taxes on a $10,000 to $15,000 Roth conversion.
Note that the Roth IRA conversion would add to your taxable income for the year you take it, but in addition to reducing your future RMDs, that converted money would then not be subject to capital gains taxes or income taxes again (once you meet the qualifications to withdraw it tax free).
There are tradeoffs, of course. The conversion does add to your taxable income in the year you make it. In addition to the direct taxes, that could increase the taxes on your Social Security and also cause you to pay higher Medicare Part B premiums.
Still, if you’re in a situation where your early RMDs are more than you need, then your later RMDs could potentially be substantially more than you need. This is because your RMD percentage increases every year as you age, and the amount that remains in your Traditional retirement account can still potentially increase due to interest, dividends, and market returns.
Regards,
-Chuck
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