As soon as you start taking required minimum distributions (RMDs) at age 73, you need to withdraw a set quantity every year out of your pre-tax retirement accounts. In the event you do not want that cash for dwelling bills, you may nonetheless use it productively. Many retirees select to reinvest their RMDs in a taxable brokerage account, add to emergency financial savings, purchase income-producing investments, pay down debt, or use a part of the funds for certified charitable distributions to cut back taxable revenue. A financial advisor might help you determine which possibility helps your general retirement plan.
As soon as you’re taking your RMD, the cash turns into taxable revenue, however you may nonetheless put it to work. After paying the taxes owed, you may reinvest the remaining funds in an everyday funding account. Frequent choices embrace mutual funds, exchange-traded funds (ETFs), dividend-paying shares, or high-yield financial savings merchandise. The aim of this technique is to maintain your cash rising, regardless that it has left your retirement account.
Earlier than reinvesting, take into consideration how quickly chances are you’ll want the cash. In the event you anticipate to make use of it inside a couple of years, you might have considered trying safer selections comparable to certificates of deposit (CDs), cash market funds, or short-term Treasury bonds. In the event you can go away the funds invested for longer, a mixture of inventory and bond funds can supply each revenue and development potential. It is also necessary to assessment how new investments might have an effect on your taxes, since earnings in a taxable account could also be reported every year.
Reinvesting your RMD could make sense for retirees who have already got regular revenue from Social Safety, pensions, or annuities and who don’t depend on RMDs to pay common bills. It could possibly additionally work for retirees who wish to develop their portfolios for future healthcare prices or go away extra property to heirs. Conserving this cash invested might help protect your buying energy over time.
After paying the taxes owed in your RMD, you may transfer the remaining funds out of your conventional IRA, SEP IRA, SIMPLE IRA, 401(ok), or 403(b) into an everyday funding account. This retains your withdrawn cash invested and provides it the potential to proceed rising even after it leaves a tax-deferred account.
You may also switch assets in kind out of your retirement plan to a taxable account as a substitute of promoting them. This implies you progress the identical investments, comparable to mutual funds, ETFs, or particular person shares, and the worth of that switch counts towards your RMD. The IRS solely requires that you simply take the withdrawal and pay the tax on it. You aren’t required to promote or spend the cash.
Taxable accounts can generate revenue and capital gains that you might have to report every year. A financial advisor or tax professional might help you assessment your reinvestment choices, handle the tax results, and ensure the plan matches your general retirement targets.
Funding an annuity with RMDs could make sense for retirees who have already got enough liquid property for short-term wants and wish to safe a part of their future revenue. This technique turns a part of your retirement financial savings into predictable funds whereas protecting different property accessible for development or emergencies.
An annuity is a contract with an insurance coverage firm that exchanges an upfront fee for a assured stream of revenue. Some retirees use annual RMD withdrawals to progressively fund an annuity that begins funds of their late 70s or early 80s, when different revenue sources could decline.
For instance, a retiree who receives an annual RMD might use these withdrawals to purchase parts of a deferred income annuity. And by age 80, these purchases would possibly present additional month-to-month revenue for all times, relying on rates of interest and contract phrases.
Various kinds of annuities supply totally different options. Fixed annuities pay a set quantity, whereas variable and indexed annuities hyperlink funds to funding efficiency or a market index. Some contracts embrace inflation riders that enhance funds over time, although these normally cut back the preliminary payout. As a result of prices, give up intervals and ensures differ, it is necessary to check choices earlier than committing funds.
A senior couple reviewing their financial savings to ensure they’ve sufficient money put aside for sudden bills in retirement.
SmartAsset and Yahoo Finance LLC could earn fee or income by way of hyperlinks within the content material under.
An emergency fund provides you fast entry to money for sudden prices comparable to residence repairs, medical payments, or journey to help household. Having this reserve can forestall you from promoting long-term investments on the incorrect time.
In retirement, market declines can have an even bigger affect as a result of chances are you’ll depend on your portfolio for revenue. An emergency fund helps cut back that danger by offering a cushion during times when markets fall. As a substitute of withdrawing out of your funding accounts throughout a downturn, you may draw out of your money financial savings till markets stabilize.
You may maintain your RMD funds in secure, interest-bearing accounts comparable to high-yield financial savings accounts, cash market funds, or CDs. For instance, in the event you obtain a $10,000 RMD, putting it in an account that earns 4% annual curiosity provides each liquidity and modest development. These accounts defend principal and permit quick access with out market publicity.
Reinvesting your RMD in a qualified charitable distribution (QCD) can cut back taxable revenue and enhance the effectivity of your retirement withdrawals. A QCD permits you to switch as much as $108,000 in 2025 from an IRA on to an permitted charity when you attain age 70½1. And in case you are 73 or older, the quantity transferred additionally counts towards your RMD, however is excluded out of your adjusted gross income (AGI).
As a result of the QCD quantity by no means enters taxable revenue, you obtain a full profit even in the event you use the usual deduction. For instance, in case your RMD totals $30,000 and also you direct $12,000 to a charity by way of a QCD, solely $18,000 seems as taxable revenue. The smaller revenue determine might help maintain you in a decrease tax bracket and cut back the affect of income-based phaseouts.
Decreasing AGI can even aid you cut back revenue taxes on Social Safety advantages, restrict publicity to Medicare revenue surcharges, and preserve eligibility for sure tax credit.
Though you can’t use RMD withdrawals to complete Roth IRA conversions, you should utilize them to pay the taxes triggered by these conversions. So, for instance, in case your RMD is $40,000, you can’t fulfill that requirement by changing $40,000 to a Roth IRA. You should first withdraw the $40,000 and transfer it into money or a taxable account. As soon as the withdrawal is full, you should utilize half or all of that $40,000 to pay the revenue taxes due on a separate Roth conversion accomplished that very same yr.
Whenever you transfer property from a traditional IRA or 401(k) right into a Roth IRA, the transformed quantity is handled as taxable revenue for that yr. Utilizing your RMD to cowl the tax invoice permits you to convert different funds with out lowering the overall quantity added to your Roth account.
This strategy might help you handle future tax publicity and cut back required withdrawals over time. As soon as property are in a Roth IRA, they’re not topic to annual RMDs, and certified withdrawals are tax-free. By utilizing RMDs to pay conversion taxes every year, you may progressively shift cash out of taxable retirement accounts and create extra flexibility for future revenue planning.
A retiree reviewing choices for utilizing RMD withdrawals, together with investing, charitable giving, or constructing money reserves for future wants.
When you begin taking RMDs at age 73, you must withdraw cash every year, however you may nonetheless use it correctly. After paying taxes, you may make investments the remaining, construct additional revenue with an annuity, maintain money for emergencies, give by way of a QCD to decrease taxes, or use it to pay taxes on a Roth conversion. Your alternative will rely in your revenue, bills and targets. A monetary or tax skilled might help you determine the right way to benefit from your RMDs.
A financial advisor might help you establish how a lot to maintain in an emergency fund and the place to carry it for security, liquidity, and modest development. Discovering a monetary advisor would not must be onerous. SmartAsset’s free tool matches you with vetted monetary advisors who serve your space, and you’ll have a free introductory name together with your advisor matches to determine which one you’re feeling is best for you. In the event you’re prepared to seek out an advisor who might help you obtain your monetary targets, get started now.
If you wish to construct your financial savings up persistently, think about setting up automatic transfers out of your checking to your financial savings accounts. This strategy might aid you make saving a routine a part of your monetary life.
“Give Extra, Tax-Free: Eligible IRA House owners Can Donate as much as $105,000 to Charity in 2024 | Inside Income Service.” Residence, https://www.irs.gov/newsroom/give-more-tax-free-eligible-ira-owners-can-donate-up-to-105000-to-charity-in-2024. Accessed Sept. 19, 2025.
