Hi Kapil,
The RLS is a good solution for it.
Be aware that if a dimension is closed, users sometimes have to select closed dimensions for reporting or inquiries. So this is to my opinion intended functionality.
I agree: More user friendly would be a lookup form with options to see all active or all dimension values. Then the user is aware what values are currently active.
In AX2012 it is possible to suspend dimension for a period in time. In this case it will be more challenging to create a good lookup form for it.