Four Ways to Use Your RMDs
If you’re retired, you’re likely familiar with Required Minimum Distributions (RMDs). Once you turn age 73 (or 75 if born after 1960), the IRS requires you to withdraw a minimum amount each year from your traditional IRAs and pre-tax retirement accounts.
For some retirees, this is welcome income. For others, it’s an unwelcome tax event that can; increase taxable income and bump you into a higher bracket, raise Medicare premiums through IRMAA surcharges, and force you to withdraw money you don’t really need this year..
The good news? You have options. While you can’t avoid taking your RMD, you can put that money to work for your future. Here are four ways to use your RMD funds, including one powerful long-term tax-saving strategy.
1. Fund a Roth IRA (Indirectly)
While you cannot transfer an RMD directly to a Roth IRA, you can take the RMD, pay the tax, and reinvest the remainder into a Roth IRA or convert additional funds from a traditional IRA to Roth.
Example:
Mary is 74 and has a Traditional IRA with $750,000. Her RMD this year is $30,000. She doesn’t need the income for living expenses, but must take it to satisfy the IRS requirement. She withdraws the $30,000, pays her ordinary income tax (say 22%), and reinvests the remaining $23,400 into a Roth IRA.
Here’s why this can be powerful:
If Mary lives a long time, once in the Roth IRA, that money grows tax-free. No future RMDs are required from the Roth IRA. Mary can pass the Roth IRA to her heirs or a charity, and they will enjoy tax-free withdrawals over time.
Over 10 to 15 years, this strategy can transform a “taxable nuisance” into a tax-free tool.
2. Make a Qualified Charitable Distribution (QCD)
If charitable giving is part of your plan, a QCD lets you send up to $105,000 (2024) directly from your IRA to a qualified charity.
Benefit: It satisfies your RMD and keeps that income off your tax return, reducing your adjusted gross income and potentially lowering Medicare costs.
3. Reinvest in a Taxable Brokerage Account
If you don’t need the RMD for living expenses, move the after-tax amount into a taxable investment brokerage account. Invest in tax-efficient ETFs or municipal bonds to keep future taxes lower. Benefit from long-term capital gains rates, which are often lower than ordinary income tax.
4. Pay Down Debt or Create a “Sinking Fund”
Some retirees use RMD funds to strengthen their balance sheet by paying off high-interest debt or a remaining mortgage to free up cash flow. Some build a sinking fund for shorter-term financial goals with a different investment strategy than how their IRA is invested. This can reduce financial stress and create a cushion against market volatility.
There are important considerations before you utilize your RMD funds. These can include: RMDs can trigger IRMAA surcharges on your Medicare Part B or move you into a new tax bracket. Spreading out Roth conversions or charitable gifts can help minimize the chance of your Medicare premium cost from increasing. It all comes down to timing. Roth conversions should occur simultaneously or after your RMD is taken. QCDs should be completed before year-end to count toward that year’s RMD.
Your RMD Is a Tool, Not Just a Requirement
RMDs may feel like an obligation, but with the right strategy, they can:
Reduce your lifetime tax burden.
Fund future tax-free growth in a Roth IRA.
Support causes you care about.
Strengthen your long-term financial security.
Next Step: Create Your RMD Strategy
If you’re taking RMDs or will start soon, your distributions don’t have to be a tax headache. With smart planning, they can support your retirement goals, lower taxes, and even create a legacy.
👉 Call our office to schedule your personalized RMD Strategy Session.
We’ll help you explore Roth opportunities, QCDs, and investment strategies to make the most of your required withdrawals.
Ecos Wealth Advisors is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.