Financially Savvy Ways to Use Your RMDs

Required minimum distributions may create a tax bill, but they can also create new financial opportunities.

Once RMDs begin, smart planning can help turn mandatory withdrawals into a financial advantage. evan_huang/Shutterstock

When you reach age 73, you’ll need to start taking required minimum distributions (RMD) from accounts like traditional IRAs and 401(k)s. RMDs are specific amounts of funds you must withdraw from these accounts every year, starting from that age.

The RMD will be treated as taxable income and can even bump you into a higher tax bracket. And if you fail to take your RMD, you could face a 25 percent excise tax on the amount not withdrawn.

So you need to take your RMD each year, regardless of whether you need it. But don’t fret. There are many ways to put your RMD to work. So let’s explore some options.

Fund a Brokerage Account

You can transfer your RMD funds into a taxable brokerage account, which could potentially grow in value.

Consider low-fee and tax-efficient ETFs and index funds. These assets could offer instant diversification by being invested in up to hundreds of different stocks. And you can further diversify your portfolio by investing in municipal bonds, which are typically tax-free at the federal level, and at the state level if you reside in the state issuing the bond. But ultimately, you should aim to build a diversified portfolio based on personal factors like your investment goals and risk tolerance.

Pay the Taxes on a Roth Conversion

RMDs don’t apply to Roth IRAs. And qualified withdrawals from Roth IRAs are tax-free. You can roll over some or all funds from your traditional IRA to a Roth IRA and enjoy these benefits.

However, you’d need to pay taxes on the converted amount. This is where your RMD can come in. You can use your RMD funds to cover the tax bill on the conversion. In this regard, the entire amount converted can fund your new Roth IRA. But keep in mind that to withdraw earnings from your Roth IRA tax-free and penalty-free, you must be at least 59.5-years-old and at least five years must have elapsed since you started funding your Roth IRA.

But Roth conversions can be complex and may not work for all investors. So be sure to consult a qualified tax advisor before you proceed.

Fund a 529 College Savings Plan

The costs of higher education can be overwhelming and they’re only getting larger. But your RMD can go a long way by funding a 529 college savings plan for the benefit of your child.

Money in a 529 plan grows tax-free. And withdrawals are also tax-free when they cover qualified educational expenses like tuition.

Support Charity

If you’re age 70.5 or over, you can donate up to $111,000 in tax year 2026 to qualified charities directly from your traditional IRA. This is known as a qualified charitable distribution (QCD). It can even satisfy your RMD. So if your RMD for the year is $40,000, you can meet that requirement by making a $40,000 QCD. And the QCD itself won’t count toward your taxable income.

Pay High-Interest Debt

One of the biggest financial challenges you may face is high-interest debt in the form of credit cards, private student loans, and medical bills. But your RMDs can help you cut down this debt and free up more cash to cover living expenses, leisure, and retirement savings.

Boost Your Emergency Savings

Many advisors recommend you have at least six months’ worth of expenses in a liquid product such as a high-yield savings account. Today, many banks are competing for your dollars, and some are willing to pay above-average interest on your savings. While the average savings account interest rate is around 0.38 percent, you can find options that offer 4 percent annual percentage yield (APY) or higher. So it helps to shop around.

You can also consider other options like certificates of deposit (CDs) based on your needs and savings goals.

The Bottom Line

Once you turn 73, you must start taking annual RMDs from accounts like traditional IRAs, 401(k)s, and 403(b)s. RMDs are treated as taxable income. And you must satisfy your applicable RMD each year or face a stiff penalty.

Luckily, there are many ways you can use your RMD to your advantage, even if you don’t need it right away.

You can consider transferring your RMD to a brokerage account, 529 plan, or your emergency fund. You can also use it to pay off high-interest debt that could be taking a significant financial toll on you. Plus, you can satisfy your RMD by making a QCD up to applicable limits.

In any case, it can help to discuss RMD strategies with a qualified financial advisor.

The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.