Once you reach age 73 or shortly after, you’ll likely need to start taking required minimum distributions (RMDs) out of your tax-deferred retirement accounts each year.
For investors who don't need their RMDs for living expenses, a key question is how to best use the withdrawals to maximize future opportunity. "There are 3 basic options for RMDs: Spend it, gift it, or invest it," says Jennifer Curtis, a wealth planner with Fidelity Investments.
Below are some strategies to consider for each of those categories.
What to do with upcoming RMDs
Spend it: Even if you don't need the money for essential living expenses, there might be "wants" you can choose to cover with an RMD distribution. "In some cases, my clients might use the money for extra spending, like a vacation or a new car," says Curtis. "But more often, they choose a combination of strategies—so if someone has, say, a $60,000 RMD, they might take a vacation, gift some, and invest the rest."
Invest it: Investors who don't need to spend their RMDs may face a common pitfall—they withdraw the money but then leave it sitting in cash, where it may earn little-to-nothing. A better option might be to reinvest the money, or to consider a shares-in-kind distribution. “Taking RMDs doesn’t have to mean taking cash out of your account,” notes Curtis. To take an RMD "in-kind," you transfer specific assets from your retirement account to a taxable account without selling them, allowing you to maintain exposure to those investments while fulfilling your RMD obligation.
Note that even though you're transferring assets in-kind, you'll still owe income tax on the fair market value of the assets at the time of the distribution. "It’s important to have sufficient cash to cover these taxes, either from outside your retirement account or by selling some assets within your taxable account,” says Curtis.
If you are reinvesting your RMDs, consider where your investments are located. In general, municipal bonds, many stock index funds, and stock mutual funds that have a goal of tax management tend to be more tax-efficient, while less tax-efficient assets include some dividend-producing stocks, bonds, and bonds funds. Additionally, professionally managed accounts that use tax-smart investing techniques may be an option.1 “The aim is to keep the money aligned to your retirement goal growing the same way across all your accounts, but locate the more tax-efficient investments in the brokerage account,” says Curtis.
Gift it: In 2026, an individual can make a gift of up to $19,000 a year to another individual without federal gift tax liability or reducing your lifetime gift exemption ($15 million per person). There is also no limit on the number of individual gifts that can be made. In other words, a couple with 3 grandchildren could potentially gift $38,000 to each grandchild, for a total of $114,000, without federal gift tax consequences.
If you have family members at or near college age, you may want to consider accelerated gifting2 to a 529 college saving plan. Thanks to recent legislative changes you can now make up to 5 years’ worth of annual gifts ($190,000) into a 529 plan at once without triggering a taxable gift.
Help reduce taxes on future RMDs
RMDs are generally taxable at your ordinary income rate, and the additional income can potentially push you into a higher tax bracket, increase the amount you pay for Medicare in the future, and increase the amount of your investment income subject to the 3.8% net investment income tax (NIIT).3 Here are several strategies that can help reduce the tax consequences of RMDs you'll need to take in the future.
Donate to a charity through a QCD or DAF. One of the most tax-efficient ways to manage your RMD is through qualified charitable distributions (QCDs). A QCD allows you to transfer assets directly from your IRA to a qualified charity (up to a maximum of $111,000 per individual in 2026). The amount transferred counts toward your RMD but is excluded from your taxable income, thereby fulfilling your philanthropic goals while reducing your tax liability.
Another option for tax-efficient gifting is by donating to a donor-advised fund (DAF) sponsor. When you make a charitable contribution to the DAF sponsor, you may be eligible to claim an immediate tax deduction (assuming you itemize your deductions) and can then recommend grants from the fund over time. While you still need to take RMDs, donating to a DAF sponsor may wholly or partially offset the tax impact of those RMDs, depending on the charity you donate to, what you donate, and the size of the donation compared to your adjusted gross income. DAFs also offer several benefits including flexibility, tax-efficient growth potential, and legacy planning. You can also donate to both a QCD and a DAF in the same year, but keep in mind that you can’t put QCD assets into a DAF.
Investigate Roth conversion opportunities. Roth IRAs offer plenty of benefits; there are no RMDs and qualified withdrawals from Roth IRAs, unlike traditional IRAs, are tax-free. 4 Roth IRAs also offer unique benefits when it comes to estate planning , namely income-tax-free distributions for your heirs. Converting assets from your traditional IRA or employer-sponsored retirement plan to Roth assets may be beneficial, but whether or not this move makes sense depends on several important factors, including your ability to pay taxes on the converted amount today, and your expected future tax rate.
If you’re already taking RMDs, it’s important to understand that the IRS doesn’t allow for the withdrawal of money from a traditional or pre-tax IRA to be deposited into Roth IRA to serve as your RMD. "A Roth conversion isn’t a substitute for an RMD,” explains Curtis. A financial professional or tax advisor can help you determine whether a Roth conversion might be an appropriate strategy to help you reduce the tax consequences of RMDs in the future.
Get guaranteed income later on. If you don’t need RMDs for current living expenses but might want a source of guaranteed 5 income later in life, you can consider a qualified longevity annuity contract (QLAC), a type of deferred income annuity. 6 A QLAC can be funded only with assets from a traditional IRA 7 or an eligible employer-sponsored qualified plan such as a 401(k), 403(b), or governmental 457(b). Purchasing a QLAC allows you to defer taking RMDs on the assets used until age 85, at which point guaranteed lifetime income would begin.
The amount you invest in a QLAC (the lifetime funding maximum is $210,000) is removed from future RMD calculations, and the stream of lifetime income begins on a future date you select, subject to policy limits.
If a QLAC isn’t an option, keep in mind that an immediate income annuity may still have RMD benefits; a little-known SECURE 2.0 Act rule may allow you to use income from a qualified income annuity purchased with retirement account assets to satisfy RMD requirements for the purchasing account.
Consider professional help
Making the best use of RMDs can be challenging. Whether you choose to reinvest your RMDs or use them for charitable purposes, the key is to align your strategy with your financial goals and values. If you're unsure about the best approach, consider consulting with a financial or tax professional, who can provide personalized guidance and help you develop a plan that helps enhance the benefits of your RMDs.