Too Much Retirement Income? Here’s What to Do

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Most people worry about outliving their money, but what if the opposite happens? What if your money is going to outlive you? Financial planning doesn’t stop once you hit 65. You'll still want to spend and invest your money.

But besides just spending more on retirement, what should you do with excess funds? Are there ways to make your money continue to work for you and your family? How can you enjoy your hard-earned money?

Keep the IRS Away From RMDs

Don’t give your hard-earned income to the Internal Revenue Service (IRS) when you receive the required minimum distribution (RMD) from your retirement accounts. Instead, you should consider a qualified charitable distribution (QCD).

When the federal SECURE 2.0 Act (Setting Every Community Up for Retirement Enhancement 2.0 Act) was passed, individuals over the age of 72½ became eligible to transfer up to $105,000 from an individual retirement account (IRA) to a qualified charity. This is tax-free.

All you must do is instruct your plan administrator to direct transfer up to $100,000 to an eligible 501(c)(3) charity. Because the money goes directly to charity and not to you, there aren’t any taxes to pay. That’s an important note. The money must go directly to charity. You can’t have the RMD go to you and then send a check.

You don’t need to itemize to use a QCD. So, you can still take advantage of the higher standard deduction that was implemented in 2018.

The QCD can be counted toward your RMD for the year. Instead of paying taxes on the mandated withdrawal as ordinary income, you wouldn’t owe any taxes on the amount given to a qualified charity. You and your spouse can both use the QCD. Each person would be able to give $100,000 apiece.

The QCD is a win-win for everyone.

College Funds for Grandchildren

Some financial professionals will suggest grandparents contribute to a 529 plan for their grandchildren. This is also an estate planning strategy.

A 529 is an investment account. It offers tax-free withdrawals and other benefits to pay for qualified education expenses. A 529 can be used for:

• K-12 tuition
• college tuition
• apprenticeship programs
• student loan repayments

Leftover funds can go to several places, including a Roth IRA.

You can build an educational legacy for your grandchild.

In the past, the Free Application for Federal Student Aid (FAFSA) penalized students who received help from their grandparents. It affected the amount of financial aid the student received. Sometimes by as much as 50 percent.

But as of the 2024–2025 school year, 529 accounts owned by grandparents will not have this adverse effect on the grandchild’s financial aid.

However, some private colleges require a supplemental form called the College Scholarship Service (CSS) Profile in addition to FAFSA. Private colleges use the CSS Profile to award their own financial aid. And, unfortunately, they still consider a grandparent’s 529 account as income for the student.

One advantage for grandparents is the potential to earn a state tax deduction. More than 30 states offer a state income tax deduction to grandparents contributing to a 529. The amount and eligibility depend on the grandparents’ resident state.

Delay Social Security

Although this isn’t a tax write-off or a way to spend, it can be considered an investment.

If you were born in 1943 or later, defer taking Social Security. Every year you defer, your benefits will increase by 8 percent up to age 70.

You'll receive a guaranteed return on your Social Security investment every year you wait.

Stay in Your 401 (k)

Not all employers will allow this, but if your former employer does, and you don’t need the money, stay put.

Your money will remain tax-free. If it’s a good plan, it’s more convenient and less stressful than rolling it over into an IRA and starting your investment program over again.

Pay Off High-Interest Debt

If you have a high balance on your credit card or still have a car payment, consider paying these items off quickly.

Interest rates can hurt you, especially if they’re variable and subject to the economy’s whims. Why pay the interest that you could be using for other fun items or experiences?

Forgo Possessions and Travel

Retirees have spent a lifetime collecting possessions. But how about collecting memories for you and your family?

Family trips are a great way to bond with children and grandchildren. A graduation trip for your granddaughter who just finished high school or college goes a long way for all of you. The memory will last a lifetime, but the “thing” that you might have given her will eventually be gone.

Do Something for Yourself With Excess Funds

Have you ever wanted to start a small business or remodel your home? Maybe you’ve always wanted that large-screen TV.

Look at what makes you happy and invest in yourself. Whether it be buying things, helping family or buying experiences, ensure it’s something you want to do. Enjoy the bounty of your hard work.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.