If you have savings in a workplace retirement plan or traditional IRA, you probably know you can’t stash money away in it forever.
Most people must begin taking money out and paying taxes on the withdrawals once they reach age 731 to meet their annual required minimum distribution (RMD). While many retirees may need this money to meet their expenses once they are retired and no longer have a dependable paycheck from work, others may not because they have other sources of savings or income, or their RMD may be larger than their expenses.
Regardless, reaching RMD age doesn’t mean the end of the road for your retirement savings strategy. RMDs can be part of an ongoing saving, spending, and investing plan throughout retirement. Remember, while taking your RMD is required, what you do with it after is entirely up to you.
Here are 3 options to consider, keeping in mind that RMDs are taxable and require having money on hand to pay the associated taxes.
1. Spend it
RMDs could become an important part of your budget in retirement. Budgeting involves calculating your monthly expenses and understanding how much money you have coming in versus going out. Going through the budgeting process can help you estimate living expenses, manage your cash flow, and determine if you'll need to use your RMDs to fund your retirement lifestyle.
Factor in potentially big-ticket items like health care. Even if you’re covered by Medicare, premiums and out-of-pocket costs can be high and are expected to keep increasing. On average, according to the 2026 Fidelity Retiree Health Care Cost Estimate, a 65-year-old person retiring in 2026 may need $185,500 in after-tax savings to cover health care expenses throughout retirement.2
On the plus side, spending doesn’t only have to mean meeting your essential expenses. Your budget and RMD income can include room for entertainment, travel, and hobbies—all the things that can make your retirement one of the most enjoyable phases of your life. In fact, research shows that most retirees tend to underspend, which can potentially prevent them from fully enjoying the lifestyle they could afford.3
If you’d like your RMD to earn interest, while keeping it easy to access for near-term spending needs, you can consider using a Fidelity® Cash Management Account for your spending.
2. Invest it
If you don’t need your full RMD for day-to-day living expenses, you can consider moving the excess to a taxable brokerage account. You can then consider reinvesting the money according to a strategy that fits your needs.
Remember to think about reinvesting within the broader context of your portfolio. A sound retirement financial plan generally includes covering essential expenses with predictable income from sources including annuities, pensions, and Social Security. It also means coordinating withdrawals across taxable, tax-deferred, and tax-free accounts, as well as seeking growth potential to combat the impact of inflation on your portfolio or the risk of outliving your money.
While it may be tempting to leave your RMD sitting in a bank account, understand that there is a risk to holding too much cash, which can hurt your portfolio’s growth potential. If doing so is in line with your broader asset allocation and you are comfortable assuming risk, it could make sense to reinvest some or all of this money in assets that have historically provided higher long-term returns. Stock investments, for example, may provide higher growth potential than cash (though also higher volatility) and can be relatively tax efficient, since you would only pay taxes on any potential capital gains once sold. The right choice depends on your spending needs, risk tolerance, and overall financial situation.
Learn more about balancing income and growth in retirement in Viewpoints: Is your portfolio ready for retirement?
Keep in mind that you don’t necessarily have to sell investments in order to take your RMD. If you're happy with your current asset allocation, an in-kind distribution lets you maintain your existing asset allocation without selling shares while also fulfilling your RMD obligation. Remember, however, that the tax treatment will change once these assets are in a taxable account, and the fair-market value of the assets transferred is taxable at the time of the distribution. Any tax owed would be paid either with cash withheld from the retirement account, or during tax time.
Lastly, if you want your RMDs to benefit future generations, but want to maintain access to the money during your lifetime, consider reinvesting them in a taxable account as part of a potential legacy. Investments held in a taxable account may be eligible for a step-up in cost basis at death, potentially reducing taxes for your beneficiaries.
3. Gift it
A third option for your RMDs, in addition to spending or investing the money, would be to gift it—whether to charity or to family or a loved one. Here are 4 ways to consider giving your RMD to others.
1. Qualified charitable distributions:
You can help others while lowering your own tax burden by donating your RMD to an eligible charity through a qualified charitable distribution (QCD). A QCD is a direct transfer of funds from your IRA custodian, payable to a qualified charity. While you can make a QCD as early as age 70 1/2, once you've reached age 73, the QCD amount counts toward your RMD for the year, up to an annual maximum of $111,000 per individual in 2026, or $222,000 in 2026 for a married couple filing jointly ($111,000 from each of their respective IRAs).
A QCD is not included in your gross income and does not count against the limits on deductions for charitable contributions.
Important to know: To count toward your RMD for the year, a QCD must be made before you sastify your RMD through other withdrawals. The distribution must be made directly to an eligible charity, meaning funds you withdraw and then donate to a charity may not qualify for a QCD. Additionally, not all charitable organizations can receive QCDs. These include donor-advised funds (see below), private foundations, or supporting organizations. Before making a QCD confirm that the organization is eligible to receive one.
2. Donor-advised funds
Another option is a donor-advised fund (DAF), which is a charitable account whose sole purpose is donating to charities you care about. While you’d still need to take RMDs, donations to a DAF may be tax-deductible, subject to IRS limits, and can potentially offset or reduce the tax impact of an RMD.
Note: You can make a QCD directly to a qualifying charity or a DAF in the same year, but keep in mind that you can’t put QCD assets into a DAF.
3. Gift to a loved one
You can also consider giving your RMD to a family member. While you would pay taxes on the RMD, an individual can gift up to $19,000 ($38,000 for a couple) a year to another individual without incurring the federal gift tax liability or reducing your lifetime gift exemption ($15 million per person) in 2026.
4. Fund future education
529 plan account contributions
If you would like to help give someone’s education a head start, you could also consider using the money you take for your RMD to fund a 529 college savings account. 529 savings plans are flexible, tax-advantaged accounts designed specifically for education savings, and withdrawals from a 529 plan can help pay for qualified education expenses at the elementary through high school levels, or for college-level and beyond.4 Starting in the 2024–2025 academic year, the Free Application for Federal Student Aid (FAFSA) no longer considers distributions from grandparent-owned 529s to be student income, potentially giving grandparents more freedom to assist with educational expenses without impacting the student’s eligibility for financial aid.
Still, keep in mind the gifting and gift tax implications mentioned above.
Qualified transfers
Yet another educational funding option beyond 529 contributions is something called a qualified transfer, where you pay tuition directly to the educational institution. While they are not tax-deductible, under federal gift tax rules qualified transfers do not count against the gift-tax exclusion and are not subject to lifetime gift-tax limitations.
Other tax-savvy strategies to consider
An RMD increases your taxable income because the IRS treats the money as ordinary income. But there may be tax-sensitive strategies you can employ to help reduce future RMDs, or to manage taxes down the road after you’ve taken an RMD.
Withdrawing pre-tax assets before RMDs begin
Strategies to consider prior to RMDs beginning at age 73—what Fidelity considers a period early in retirement called the retirement income valley—might include withdrawing tax-deferred assets from a traditional IRA or workplace retirement plan when your tax rate is potentially lower. You could use the money to pay for retirement expenses while potentially reducing balances in these accounts and the size of RMDs in the future.
Roth conversions
Similarly, a Roth IRA conversion when your tax rate is potentially lower will also decrease the amount of money in any tax-deferred accounts. As with the withdrawal of tax-deferred funds above, that means once you start taking RMDs from your other accounts, your distribution and taxes could potentially be lower. (Remember that converted amounts are taxable.) What’s more, once the funds are in a Roth, there are no RMD requirements and withdrawals are tax-free if aging requirements are met.5
Note: A Roth IRA conversion may not be right for everyone depending on their tax situation.
Consider guaranteed income now
An income annuity can help ensure you don’t outlive your money by providing predictable income either for life or for a set period of time.6 A little-known provision from the SECURE 2.0 Act allows excess income from a qualified annuity to help satisfy RMD obligations from other eligible retirement accounts, potentially letting retirees keep more savings invested and tax-deferred for longer.
Find out more in Viewpoints: A little-known way to satisfy RMDs
Or consider guaranteed income later
If you think you might need a source of predictable income later in life, a qualified longevity annuity contract (QLAC) is a type of deferred income annuity that can be funded only with assets from a traditional IRA or an eligible employer-sponsored qualified plan such as a 401(k), 403(b), or governmental 457(b).6,7, 8 By purchasing a QLAC, you can defer taking RMD distributions on the assets used for the purchase up to age 85, when guaranteed lifetime income would begin.
As of 2026, the lifetime funding maximum for a QLAC is $210,000, and the amount you choose, up to and including the maximum, is removed from future RMD calculations. The stream of lifetime income begins on a future date you select, subject to policy limits.
Remember to plan ahead
While you may not need RMD money to fund your retirement spending, you’re still required to take an RMD annually from your retirement accounts.
Your RMD gives you many options, and they are likely to play a key role in your financial plan for retirement. Consider working with a financial and tax professional to understand how RMDs meet your IRS requirements and to determine the best way an RMD can help you achieve the financial goals that matter most to you.