Can I Reinvest My Required Minimum Distribution?
Once you turn 73, you'll need to take an annual required minimum distribution (RMD) from certain retirement accounts. What can you do with the money if you don't need it for expenses? Our consultants provide ideas.
Key Takeaways
The IRS requires distributions from retirement accounts, and it’s important to understand the rules and your options.
You can reinvest an RMD in a taxable investment account, but you can’t invest it in most retirement accounts.
You can also redirect RMDs toward other tax-advantaged uses, such as qualified charities.
With most retirement accounts, you must take an annual required minimum distribution (RMD) once you reach a certain age. This means you take a payout from your traditional IRA, 401(k) or other retirement account. The required amount is calculated based on your age and the account balance. Occasionally, laws change RMD guidelines, and it’s important to stay on top of the rules.
But what can you do with the RMD money if you don’t need it right away? If a pension or other income has already got your expenses covered for the year, you may be scratching your head over what to do with the amount you are required to withdraw. Financial Consultants Rachel McLain, Addison Schubert and Don Thomas discuss some options.
When Do You Need to Take RMDs?
The IRS’ starting age is 73, effective January 1, 2023 (or age 75, for those born in 1960 or later). The deadline is generally December 31.
Read more about deadlines and penalties.
If this is a year you need to take an RMD, read on for some suggestions on how you can potentially use the money.
Reinvest Your Required Minimum Distribution
Not needing your required distribution amount for today’s expenses is a great problem to have, but it can still be a problem. “Some of my clients wish they didn’t have to take an RMD and would rather keep it invested or are wary of the tax burden,” says Rachel.
Addison agrees: “I have clients who are living off the money and those who don’t need it right now. Of those who don’t need it, they would much rather keep it protected from taxes so they can leave it to their children.”
However, distributions are still required and where you put the money matters. Don says, “Leaving the money in a checking account invites inflation risk, but you do have other options to put that RMD to work for the future.”
Investors often wonder if they can reinvest the money. The answer is yes, with caveats. You can invest an RMD in a taxable investment account—but not back into most retirement accounts.
Can I Put My RMD Into a Roth IRA?
You might be able to contribute your RMD to a Roth IRA. You have to have earned income in an amount equal to or greater than the contribution amount.
Remember, the RMD amount you must take is still considered taxable income in the year you take it. Roth IRAs have no RMDs during your lifetime .
Use Your RMD to Invest for a Child’s Future
Another solution is to put your RMD into an education or custodial account for a grandchild or other minor.
To use your RMD to fund an account, take the distribution as you normally would. Then you can either establish an account with you as the custodian or responsible individual, or you can direct it to an existing account controlled by the child’s parent. You also may be able to automate RMDs to go directly into an account.
Accounts available from American Century Investments:
Coverdell Education Savings Account (CESA). The money must be used for education expenses. Contributions can only be made before the beneficiary turns 18.
Uniform Transfers to Minors Act (UTMA) account. Investments can be used for any purpose—including education.
Minor IRA account. IRAs are generally used for retirement, but the IRS allows exceptions for certain early withdrawals , such as education. Minors must have earned income.
Another option is a 529 Education Savings Plan , which is a state-sponsored education account that can be used for education expenses for minors as well as adults.
Turn Your Required Distribution Into a Charitable Distribution
“Another good use for an RMD is a gift for someone else—and the gift may also let you enjoy a tax advantage,” says Rachel.
Whether it’s to an arts foundation, a volunteer fire department or an animal rescue organization, you can have your RMD check issued directly to the qualified charity of your choice. This is called a qualified charitable distribution (QCD).
Qualified Charitable Distribution Basics
The maximum annual amount that can qualify for a QCD in 2026 is $111,000* per person, per calendar year. QCD amounts are excluded from your taxable income.
QCDs can be tricky, so you may want to consult a tax professional before using your RMD this way.
Spend Your RMD
A good rule of thumb is to always pay expenses out of your RMD before you cash out other investments. “That’s because you must take the RMD, while other investments could remain untouched,” says Addison.
But if you’ve already got the funds for your normal expenses, like your groceries, taxes and other necessities, you may want to consider using your RMD for your “extra” expenses.
Don says: “Take a memory-making vacation with family. Buy a fire pit. Take salsa lessons. Or make a practical investment, such as a new roof, a reliable car or a more energy-efficient furnace. Enjoying your time or paying for a needed bigger expense—either is a good use of the money you’ve saved.”
Log in to review your RMD amount, including how much you've taken or may still need to take (based on accounts at American Century).
Answer RMD Questions by Preplanning
Besides what to do with the money, clients often have related questions: How do I know how much to take, is there a way to be more tax efficient with my RMD and should my investments change when I start taking my RMD? Many of these can be answered by planning.
Your RMD Amount
As mentioned previously, your RMD amount is based on your age and account balance. “Calculating your RMD can seem confusing, but we’re happy to help,” says Rachel. “Those who are part of our Private Client Group advisory services will automatically get their RMD amount as part of our planning services, but any client can call for their amount—or use the RMD calculator if they want to calculate their current-year RMD themselves.”
RMD Tax Strategies
Planning for a future RMD can give you some options, including Roth conversions.** “With preplanning—before you need to take the RMD—converting money in a traditional IRA or 401(k) to a Roth IRA can be a way to reduce RMD amounts and benefit from tax-free withdrawals in retirement,” says Don. Our RMD planner can help you plan for multiple years.
“Roth IRAs require you to have earned income, and many people who are of RMD age are not still working. That makes the preplanning timing important—before you retire from working or start taking the RMD,” says Addison. “You could also consider the QCDs mentioned previously, which should also be planned at the pre-RMD stage.”
Adjusting Investment Strategies When Taking RMDs
Some investors may wonder if they should change their investment portfolio when they start taking RMDs from their retirement accounts. Don says: “The situation is the boss here. Rules of thumb can be good for conversations, but your personal situation requires more analysis. Investors may want to consider working with a financial advisor regarding their portfolios.”
“It also depends on what the investor wants to do with their RMD,” Rachel says. “If a client is putting the money in their bank account, then we need to look at strategies. We would look at the same factors we would for any client—how much risk you should take and if there are options that may be more tax efficient, such as with an exchange-traded fund portfolio.”
Don’t Skip Your RMD
No matter how you decide to use it—or even if you still haven’t made up your mind—be sure to take your RMD by December 31. If you don’t, the IRS may impose a 25% penalty tax.
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2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living, irs.gov, Notice 2025-67.
Converting from a traditional to a Roth IRA is a taxable event and could push you into a higher tax bracket. Also, each conversion is subject to the Roth IRA 5-year rule . You may wish to consult a qualified tax advisor before making a decision.
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
Please consult your tax advisor for more detailed information regarding the Roth IRA or for advice regarding your individual situation.
Taxes are deferred until withdrawal if the requirements are met. A 10% penalty may be imposed for withdrawal prior to reaching age 59½.
You could lose money by investing in a mutual fund, even if through your employer's plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
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The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.