5 Smart Money Moves to Make With Your RMDs

Reinvesting Required Minimum Distributions (RMDs) After Age 73

Once you reach the age of 73, you are required to start taking out a set amount from your pre-tax retirement accounts each year, known as Required Minimum Distributions (RMDs). While this money is taxable income, there are various ways you can utilize it effectively. Many retirees choose to reinvest their RMDs in a taxable brokerage account, add to emergency savings, buy income-producing investments, pay down debt, or use part of the funds for qualified charitable distributions to reduce taxable income. Consulting with a financial advisor can help you determine the best option that aligns with your overall retirement plan.

After you have taken your RMD, you have the opportunity to reinvest the remaining funds in a regular investment account. This can include options such as mutual funds, exchange-traded funds (ETFs), dividend-paying stocks, or high-yield savings products. The goal of reinvesting is to continue growing your money, even outside of your retirement account.

Before deciding on how to reinvest, consider your timeline for needing the money. If you anticipate needing the funds in the near future, safer options like certificates of deposit (CDs), money market funds, or short-term Treasury bonds may be more suitable. For longer-term investments, a mix of stock and bond funds can provide both income and growth potential. Additionally, be mindful of how new investments may impact your taxes, as earnings in a taxable account are typically reported annually.

Reinvesting your RMD can be beneficial for retirees who have steady income from sources like Social Security, pensions, or annuities and do not rely on RMDs for regular expenses. It can also be a strategy for those looking to grow their portfolios for future healthcare costs or leaving assets to heirs. By keeping this money invested, you can help maintain your purchasing power over time.

After paying taxes on your RMD, you can transfer the remaining funds from your traditional IRA, SEP IRA, SIMPLE IRA, 401(k), or 403(b) into a regular investment account. This allows your withdrawn money to remain invested and potentially continue growing even outside of a tax-deferred account.

Another option is to transfer assets in kind from your retirement plan to a taxable account instead of selling them. This means moving the same investments, such as mutual funds, ETFs, or individual stocks, and the value of that transfer counts toward your RMD. The IRS only mandates the withdrawal and tax payment, without requiring you to sell or spend the money.

Taxable accounts can generate income and capital gains that may need to be reported annually. Consulting with a financial advisor or tax professional can help you navigate reinvestment options, manage tax implications, and ensure your plan aligns with your retirement goals.

Funding an annuity with RMDs can be a suitable strategy for retirees who have sufficient liquid assets for immediate needs and wish to secure future income. This approach involves converting part 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 provides a guaranteed stream of income in exchange for an upfront payment. Some retirees use annual RMD withdrawals to gradually fund an annuity that starts paying out in later years, when other income sources may diminish.

Different types of annuities offer various features, such as fixed payments, variable payments linked to investment performance, or indexed payments tied to a market index. It’s essential to compare options based on costs, surrender periods, and guarantees before committing funds.

In conclusion, reinvesting your RMDs after age 73 can be a strategic way to make the most of your retirement savings. Whether you choose to reinvest, fund an annuity, build cash reserves, donate to charity, or pay taxes on Roth conversions, the decision should align with your financial situation, goals, and timeline. Consulting with a financial or tax professional can provide valuable guidance in optimizing your RMD strategy.