It’s never too early in the year to start planning around a critical year-end retirement issue: Required Minimum Distributions.
If you’re of a certain age, the RMD is a feature built into retirement plans like an IRA to force you to take some of your money out rather than keep it sheltered from taxes and growing indefinitely. You must take the money out by the end of the calendar year (12/31) or risk a penalty of 50% of the amount of the RMD.
With such a punitive event out on the horizon, actively planning is critical — both in regards to how much you’re taking out and what you’ll do with it.
While you can take the money and simply head off to that golf course you always wanted to play or simply sock it away for a rainy day, a better idea is to invest your RMD money in dividend paying stocks. This way you’ll see quarterly (or monthly) income coming back to you from that extra money.
Here are some ideas, with stocks with trailing price-to-earnings ratios under 20, implying a fair valuation, along with decent dividends that are over 3% and have a payout ratio of less than 60% of total earnings to show they are sustainable over the long term.