Required minimum distributions (RMDs) are the minimum amount you must withdraw from certain retirement accounts when you hit age 73 (or age 75 if you were born in 1960 or later). They're the government's way of ensuring you pay taxes on funds you didn't pay taxes on when they were contributed to the account.
Love them or hate them, RMDs are a way of life in retirement. While most people have a plan for what they're going to do with their RMDs, you may be among the fortunate few who don't need the money. If that's the case, here are four alternative ways you can repurpose the funds.
Image source: Getty Images.
1. Reinvest them
If you're not counting on the money to cover living expenses, consider reinvesting it. Here are a few examples of investments worth considering:
- Mutual funds: The money invested in a mutual fund goes toward the purchase of a diversified pool of stocks and/or bonds. You choose funds based on three things: How soon you expect to need the money, your growth goals, and your risk tolerance. You may be able to name beneficiaries to receive the fund upon your death, making it an excellent addition to your estate plan.
- Annuities: You can use the funds from RMDs to purchase nonqualified (after-tax) annuities. While you'll pay taxes on the RMDs in the years you take them, once you've invested in an annuity, the earnings can grow tax deferred while providing a stream of income for life.
- Roth IRA: If you work (part-time or full-time) in retirement, you may still be eligible to invest in a Roth IRA. Investing in a Roth after retirement can be a smart strategic move. Here's a breakdown of what you need to know about eligibility.
Modified Adjusted Gross Income (MAGI) Limits
|
Tax Year |
Income Limit to Make a Full Contribution |
Income Limit to Make a Partial Contribution |
Ineligible to Contribute |
|---|---|---|---|
|
2025 |
Single: MAGI less than $150,000 |
Single: MAGI $150,000-$165,000 |
Single: MAGI of $165,000 or more |
|
2026 |
Single: MAGI less than $153,000 |
Single: MAGI $153,000-$168,000 |
Single: MAGI of $168,000 or more |
Data source: Fidelity.
2. Create a dedicated fund for healthcare
It's no secret that healthcare in retirement can be expensive. Even if you never face a serious health condition, paying monthly Part B premiums, copays, deductibles, and prescriptions adds up. And if you're ever seriously ill, the cost could be prohibitive.
Even if you already have a hefty emergency fund, create a separate fund solely for medical care. You may never need to use it, but you'll always know it's available if required.
3. Keep everything in tip-top shape
The better you maintain your home and car, the less likely you are to spend on repairs. Why not use an RMD to make repairs or improvements to your house that you've been putting off? If your patio is sinking into the ground, pay to have it mudjacked. If your gutters are rusted and holes have begun to appear, replace them. Use RMD funds to improve your living conditions and add value to your home.
It's easy to postpone auto maintenance, particularly if you no longer drive much. Take the opportunity to have your car checked out by a mechanic and any needed repairs completed.
4. Open your heart
Given the number of recent changes to programs for the needy, there are more charitable options than ever. If you're 70 1/2 or older and your RMD is withdrawn from a rollover, inherited, or traditional IRA, you can have it sent directly from the plan administrator to a qualified charity through a qualified charitable distribution (QCD). Here's what you need to know:
If you're single, you can donate up to $108,000 ($115,000 in 2026). If you're married, each of you can donate up to $108,000 for a total of $216,000 ($230,000 in 2026).
- The amount you choose to donate is excluded from your taxable income.
- You can use a QCD to satisfy all or part of your annual RMD.
- Donations can be made to most 501(c)(3) public charities.
The fact that you don't need your RMDs to cover bills gives you options. It's just a matter of picking the one (or more) that works for you.
