Once you begin taking required minimum distributions (RMDs) at age 73, you’ll need to withdraw a set amount each year from your retirement accounts on a pre-tax basis. If you don’t need that money for living expenses, you can still use it productively. Many retirees choose to roll over their RMDs into a taxable brokerage account, add emergency savings, purchase income-producing investments, pay down debt, or use part of the funds for qualified charitable distributions to reduce taxable income. A financial advisor can help you decide which option supports your overall retirement plan.
Once you take your RMD, the money becomes taxable income, but you can still put it to work. After you pay any taxes due, you can reinvest the remaining funds in a regular investment account. Common options include mutual funds, exchange-traded funds (ETFs), dividend-paying stocks, or high-yield savings products. The goal of this strategy is to keep your money growing, even if it has left your retirement account.
Before reinvesting, think about when you will 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 Treasury bonds. If you can leave the funds invested for longer, a mix of stock and bond funds can offer both income and growth potential. It’s also important to review how new investments could affect your taxes, since gains in a taxable account can be reported each year.
Reinvesting your RMD may make sense for retirees who already have stable income from Social Security, pensions or annuities and who don’t rely on RMDs to pay their regular expenses. It can also work for retirees who want to grow their portfolios to cover future health care costs or leave more assets to heirs. Keeping this money invested can help preserve your purchasing power over time.
After you pay any taxes due on your RMD, you can roll the remaining funds from your traditional IRA, SEP IRA, SIMPLE IRA, 401(k) or 403(b) into a regular investment account. This keeps the withdrawn money invested and gives it the potential to continue growing even after you leave a tax-deferred account.
You can also transfer in-kind assets from your retirement plan to a taxable account instead of selling them. This means you move the same investments, such as mutual funds, ETFs, or individual stocks, and the value of that transfer counts toward your RMD. The IRS only requires that you make the withdrawal and pay the corresponding tax. You don’t have to sell or spend the money.
Taxable accounts can generate income and capital gains that you may need to report each year. A financial advisor or tax professional can help you review your rollover options, manage tax effects, and ensure the plan fits your overall retirement goals.
Funding an annuity with RMDs may make sense for retirees who already have enough liquid assets for short-term needs and want to lock in some of their future income. This strategy converts some of your retirement savings into predictable payments while keeping other assets available for growth or emergencies.
An annuity is a contract with an insurance company that exchanges an upfront payment for a guaranteed stream of income. Some retirees use annual RMD withdrawals to gradually fund an annuity that begins to pay out between ages 70 and 80, when other sources of income may decline.
For example, a retiree who receives an annual RMD could use those withdrawals to purchase portions of a deferred income annuity. And at age 80, those purchases could provide additional monthly income for life, depending on interest rates and contract terms.
Different types of annuities offer different features. Fixed annuities pay a fixed amount, while variable and indexed annuities tie payments to investment performance or a market index. Some contracts include inflation clauses that increase payments over time, although they generally reduce the initial payment. Because costs, surrender periods, and warranties vary, it’s important to compare options before committing funds.
An elderly couple reviews their savings to make sure they have enough cash set aside for unexpected expenses in retirement.
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An emergency fund gives you quick access to cash for unexpected costs, such as home repairs, medical bills, or trips to help family. Having this reserve can prevent you from selling long-term investments at the wrong time.
During retirement, market declines can have a greater impact because you may rely on your portfolio for income. An emergency fund helps reduce that risk by providing a cushion during periods when markets decline. Instead of withdrawing money from your investment accounts during a recession, you can withdraw money from your cash savings until the markets stabilize.
You can keep your RMD funds in secure, interest-bearing accounts, such as high-yield savings accounts, money market funds, or CDs. For example, if you receive a $10,000 RMD, placing it in an account that earns 4% annual interest adds liquidity and modest growth. These accounts protect capital and allow easy access without market exposure.
Reinvesting your RMD into a qualified charitable distribution (QCD) can reduce your taxable income and improve the efficiency of your retirement withdrawals. A QCD allows you to transfer up to $108,000 in 2025 from an IRA directly to an approved charity once you turn 70½.1. And if you’re age 73 or older, the transferred amount also counts toward your RMD, but is excluded from your adjusted gross income (AGI).
Because the QCD amount never enters taxable income, you receive a full benefit even if you use the standard deduction. For example, if your RMD is $30,000 and you direct $12,000 to a charity through a QCD, only $18,000 appears as taxable income. The smaller income figure can help you stay in a lower tax bracket and reduce the impact of income-based eliminations.
Reducing AGI can also help you reduce income taxes on Social Security benefits, limit exposure to Medicare income surcharges, and maintain eligibility for certain tax credits.
Although you cannot use RMD withdrawals to complete Roth IRA conversions, you can use them to pay the taxes generated by those conversions. So, for example, if your RMD is $40,000, you cannot satisfy that 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 that $40,000 to pay income taxes due on a separate Roth conversion completed that same year.
When you move assets from a traditional IRA or 401(k) to a Roth IRA, the converted amount is treated as taxable income for that year. Using your RMD to cover your tax bill allows you to convert other funds without reducing the total amount added to your Roth account.
This approach can help you manage future tax exposure and reduce necessary withdrawals over time. Once assets are in a Roth IRA, they are no longer subject to annual RMDs and qualified withdrawals are tax-free. By using RMDs to pay conversion taxes each year, you can gradually withdraw money from taxable retirement accounts and create more flexibility for future income planning.
A retiree reviewing options for using RMD withdrawals, including investments, charitable giving, or building cash reserves for future needs.
Once you start taking RMDs at age 73, you’ll have to withdraw money every year, but you can still use it wisely. After paying taxes, you can invest the rest, generate additional income with an annuity, stash away cash for emergencies, donate through a QCD to reduce taxes, or use it to pay taxes in a Roth conversion. Your choice will depend on your income, expenses and objectives. A financial or tax professional can help you decide how to make the most of your RMDs.
A financial advisor can help you determine how much to keep in an emergency fund and where to keep it for security, liquidity, and modest growth. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with vetted financial advisors serving your area, and you can take a free introductory call with your matched advisors to decide which one you think is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you want to steadily increase your savings, consider setting up automatic transfers from your checking account to your savings account. 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.
