As soon as you start taking it required minimum distributions (RMDs) At age 73, you must withdraw a set amount from your retirement account before taxes each year. If you don’t need this money for living expenses, you can still use it productively. Many retirees choose to reinvest their RMDs in a taxable brokerage account, increase emergency savings, purchase income-producing investments, pay down debt, or use a portion of the funds for qualified charitable distributions to reduce taxable income. A Financial advisor can help you decide which option will support your overall retirement plan.
Once you receive your RMD, the money becomes taxable income, but you can still use it. After you pay the taxes you owe, you can reinvest the remaining funds in a regular investment account. Common options include mutual funds, Exchange Traded Funds (ETFs)Dividend stocks or high-yield savings products. The goal of this strategy is to keep your money growing even after it leaves your retirement account.
Before investing again, think about how quickly you might need the money. If you expect to use it within a few years, you may want safer options such as: Certificates of Deposit (CDs)Money market funds or short-term government bonds. If you can keep the funds invested for a longer period of time, a mix of stock and bond funds can offer both income and growth potential. It’s also important to consider how new investments might affect your taxes, since income in a taxable account can be reported each year.
Reinvesting your RMD may make sense for retirees who already have regular income from Social Security, pensions, or pensions and do not rely on RMDs to pay their regular expenses. It can also work for retirees who want to expand their portfolio for future healthcare costs or leave more assets to heirs. If you continue to invest this money, you can maintain your purchasing power in the long term.
After you pay the taxes owed on your RMD, you can transfer the remaining funds from your traditional IRA, SEP IRA, SIMPLE IRA, 401(k), or 403(b) to a regular investment account. This means the money you withdraw remains invested and has the opportunity to continue to grow even after you leave Tax-deferred account.
You can also transfer Tangible assets transfer from your retirement savings to a taxable account instead of selling them. This means you transfer the same investments, such as mutual funds, ETFs, or individual stocks, and the value of that transfer counts toward your RMD. The IRS simply requires that you make the withdrawal and pay the tax on it. You are under no obligation to sell or spend the money.
Taxable accounts can generate income and Capital Gains that you may need to report every year. A Financial advisor or tax specialist can help you consider your reinvestment options, manage tax implications, and ensure the plan meets your overall retirement goals.
Funding a pension with RMDs can make sense for retirees who already have sufficient liquid assets for short-term needs and want to protect some of their future income. This strategy converts some of your retirement savings into predictable payments while leaving other assets available for growth or emergencies.
A Pension is a contract with an insurance company that trades an upfront payment for a guaranteed source of income. Some retirees use annual RMD withdrawals to gradually fund a pension, with payments beginning in their late 70s or early 80s, when other sources of income may decline.
For example, a retiree who receives an annual RMD could use those withdrawals to purchase portions of one Deferred income pension. And by age 80, these purchases could provide additional monthly income for life, depending on the interest rate and contract terms.
Different types of annuities offer different features. Fixed pensions pay a fixed amount while variable and indexed pensions Link payments to investment performance or a market index. Some contracts include inflation factors that increase payments over time, although these typically reduce the initial payout. Because costs, buyback periods and guarantees vary, it is important to compare options before committing funds.
An older couple reviews their savings to ensure they have enough money set aside for unexpected expenses in retirement.
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A Emergency fund gives you quick access to cash for unexpected expenses like home repairs, medical bills or travel to support family. This reserve can help you avoid selling long-term investments at the wrong time.
In retirement, market declines can have a greater impact because you may rely on your portfolio for income. An emergency fund helps reduce this risk by providing a cushion during periods of declining markets. Instead of withdrawing money from your investment accounts during a downturn, you can dip into your savings until markets stabilize.
You can keep your RMD funds in safe, interest-bearing accounts such as high-yield savings accounts, money market funds, or CDs. For example, if you receive a $10,000 RMD, depositing it into an account with a 4% APR will result in both more liquidity and slight growth. These accounts protect capital and allow easy access without market risks.
Reinvest your RMD in a Qualified Charitable Distribution (QCD) can reduce taxable income and improve the efficiency of your pension withdrawals. A QCD allows you to transfer up to $108,000 from an IRA directly to an approved charity in 2025 once you reach age 70½1. And if you are 73 or older, the transferred amount will also count toward your RMD but will be excluded from your RMD adjusted gross income (AGI).
Because the QCD amount is never included in taxable income, you get the full benefit even if you take the standard deduction. For example, if your RMD is $30,000 and you transfer $12,000 to a charity via a QCD, only $18,000 will appear as taxable income. The lower income figure can help keep you in a lower tax bracket and reduce the impact of the income-based phase-out.
Reducing AGI can also help you reduce income taxes on Social Security benefits, limit your exposure to Medicare income supplements, and maintain eligibility for certain tax credits.
Even if RMD withdrawals are not possible complete Roth IRA conversionsYou can use it to pay the taxes resulting from these conversions. For example, if your RMD is $40,000, you cannot meet this requirement by converting $40,000 to a Roth IRA. You must first withdraw the $40,000 and transfer it to cash or a taxable account. Once the withdrawal is complete, you can use some or all of the $40,000 to pay the income taxes due on a separate Roth conversion in the same year.
When you move assets from one traditional IRA or 401(k) is converted to a Roth IRA, the converted amount will be treated as taxable income for that year. Using your RMD to cover tax liability allows you to convert other funds without reducing the total amount credited to your Roth account.
This approach can help you manage future tax bills and reduce required withdrawals over time. Once assets are in a Roth IRA, they are no longer subject to annual RMDs and qualified withdrawals are tax-free. Using RMDs to pay conversion taxes annually allows you to gradually withdraw money from taxable retirement accounts and create more flexibility for future income planning.
A retiree explores options for using RMD withdrawals, including investing, donating to charity, or building cash reserves for future needs.
Once you start taking RMDs at age 73, you’ll need to withdraw money every year, but you can still put it to good use. After you pay taxes, you can invest the remainder, build additional income with an annuity, store cash for emergencies, donate through a QCD to reduce taxes, or use it to pay taxes on a Roth conversion. Your choice depends on your income, expenses and goals. A financial or tax professional can help you decide how to get the most out of your RMDs.
A Financial advisor can help you determine how much you should keep in an emergency fund and where to keep it for safety, liquidity and modest growth reasons. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with verified financial advisors working in your region, and you can have a free introductory meeting with your matched advisors to decide which one you think is right for you. If you are ready to find an advisor who can help you achieve your financial goals, Start now.
If you want to consistently build your savings, think about it Set up automatic transfers From your checking account to your savings accounts. This approach could help you make saving a routine part of your financial life.
“Give more, tax-free: Eligible IRA owners can donate up to $105,000 to charity in 2024 | Internal Revenue Service.” Homehttps://www.irs.gov/newsroom/give-more-tax-free-eligible-ira-owners-can-donate-up-to-105000-to-charity-in-2024. Accessed September 19, 2025.
