You have to take required minimum distributions (RMDs) from individual retirement accounts and 401(k) accounts when you hit 73. RMDs can create tax complications that you may not be expecting because they count as income. Moreover, they can play havoc with other benefits, like increasing the Medicare premiums you pay. So what do you do with the money if you don't need it? Here are a few possibilities.
1. Keep the RMDs for your own use
While you may not need your RMDs, that doesn't mean you can't use the money. For starters, you can use the cash to cover higher costs that may come with RMDs (like taxes and increased Medicare premiums). With any money that's left over, well, you can treat yourself. Maybe there's a trip you wouldn't have otherwise taken or a nice piece of jewelry you had your eye on for yourself or your spouse. You could even just go out to eat a little more often. It's your money; you earned the right to spend it in whatever manner brings you the most joy.
2. Invest your RMD
You might decide that spending money just to spend money feels wrong. If that's the case, you can simply put the cash into a taxable investment account and reinvest it. You might even decide to repurchase whatever you sold from your retirement account to fund the RMD. Just because you have to take an RMD doesn't mean you have to stop investing.
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3. Use your RMD for gifts
If you don't want to use your RMD to spend on yourself and you aren't going to invest the money, you could give that cash to other people. The most obvious choice is to simply write a check to family and, perhaps, friends. However, there are IRS limits on the amount you can gift to others. You may want to check with your tax accountant if you are writing particularly large checks.
That said, you can also do what's known as a qualified charitable distribution (QCD). Basically, you give that money away without ever touching it, so it doesn't impact your finances in any way. While you can not claim the donation on your taxes, it will count toward satisfying your RMD requirement. A QCD allows you to do some good without experiencing some of the potential negatives associated with RMDs (like higher taxes and higher Medicare premiums).
You have options with your RMDs
At the end of the day, you have to take your RMDs. Whether you keep the cash, give it away, or spend it will depend on your unique situation. But what you do with that money is entirely up to you. It is your money, after all.
