Using required retirement withdrawals to enhance your investment portfolio.

• Eventually, you will have to withdraw money from your pretax retirement accounts, which are called required minimum distributions or RMDs.
• Experts suggest that RMDs can provide an opportunity to enhance your portfolio, despite concerns about the tax implications.
• You could adjust your asset allocation or tax location for future growth using RMDs.

In retirement, you'll be obligated to withdraw a certain amount of money from your pretax retirement accounts, known as required minimum distributions or RMDs.

Experts suggest that the yearly activity of RMDs, although it can trigger higher taxes, could provide an opportunity to enhance one's portfolio for some retirees who don't require the funds.

Matthew Saneholtz, a certified financial planner and chief investment officer at Tobias Financial Advisors in Plantation, Florida, said, "In the end, you examine your portfolio and ask yourself, what do I want to remove?"

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Starting in 2033, the age at which most retirees need to begin RMDs will increase from 73 to 75, as per changes enacted by Secure 2.0.

You have until April 1 of the year you turn 73 to make your first RMD, and if you miss or take less than the required amount in any given year, there will be a 25% penalty on the amount you should have withdrawn.

Rebalance your investments

By using RMDs, you can adjust your asset allocation to your desired percentages, taking into account your risk tolerance, goals, and timeline.

Paul Winter, president of Five Seasons Financial Planning in Salt Lake City, Utah, stated that every client in his practice has a target asset allocation, and he sells a holding from whichever asset class or classes they happen to be overweight in at the time, typically U.S. stocks.

To avoid the "sequence of returns risk" and shrink your portfolio over time, experts advise against selling investments when they are down.

Selling more investments during a stock market downturn to withdraw assets could result in fewer investments to capture future growth when the market recovers.

Shift your 'tax location'

Saneholtz advised adjusting tax location or investment types in specific accounts to minimize future taxes.

Taxes apply differently to withdrawals from pretax retirement accounts, brokerage accounts, and Roth accounts. Pretax withdrawals are subject to income taxes, while brokerage accounts are subject to capital gains taxes. Roth accounts typically grow tax-free.

If you don't need the RMD, you could reinvest the funds in a brokerage account to potentially benefit from more favorable capital gains tax treatment in the future.