Don't Need Your Required Minimum Distribution (RMD) Just Yet? Here's What You Can Do With the Cash Influx.

Source The Motley Fool

Required minimum distributions (RMDs) are the minimum amounts you must withdraw each year from certain retirement accounts to stay on the good side of the IRS. These accounts include traditional IRA, SEP IRA, SIMPLE IRA, and other pre-tax retirement plan accounts.

As of now, you're required to start taking RMDs at age 73 so you can start paying taxes on those withdrawals. However, if you're part of a workplace plan like a traditional 401(k), you may be able to delay your enrollment until the year you leave the workforce.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

If you don't need the extra cash flow from your RMDs, those withdrawals might feel like a big headache. Worse, they could even bump you into a higher tax bracket. But don't worry -- there are smart ways to make the most of your RMDs. Here are two options that are worth considering.

An older adult sits at their computer, happily reviewing their finances.

Image source: Getty Images.

1. Put your money to work

It might be tempting to withdraw your RMD and let it sit idle in a checking account. But why stop your money from working for you? Instead, consider reinvesting it in a taxable brokerage account so your funds can continue to grow.

Let's say you invest in dividend-paying stocks. You'll owe taxes on the income you earn, but you'll be able to build a steady stream of dividend income that potentially pays you every month. Or you can invest in growth stocks and ride the wave of capital appreciation.

Want to spread your risk? Consider exchange-traded funds (ETFs), and you'll have instant diversification.

If you're still earning income from side gigs or other work, you can use your RMD money to fund a Roth IRA if you qualify.

2. Determine if a QCD is right for you

Not feeling up to managing your RMD? Maybe you'd rather put that money to good use supporting others. A qualified charitable distribution (QCD) might be your cup of tea. If you're 70 1/2 or older, you can use a QCD to satisfy your RMD and support your favorite charity without itemizing deductions.

The best part? It won't bump up your taxable income. The money has to go straight from your IRA trustee to the qualified charity, though, to remain tax-free.

For 2024, the tax-free charitable donation cap through QCDs has climbed to $105,000. If you're married, you and your spouse can donate up to $210,000 combined -- as long as you have separate IRAs and check the box on the requirements.

Pay attention to the deadlines so your RMD can count for the current year. Also, grab a written acknowledgment of your contribution from the charity before filing your tax return.

What happens if you don't take your RMD?

Not needing your RMD is one thing, but not taking it? That's a whole other story -- and can cost you a pretty penny. Whether you've got cash to spare or not, Uncle Sam still expects you to take your RMD before the deadline. If you miss it, you'll face a penalty tax of up to 25% on the amount you skipped.

To avoid this penalty, make sure you know the rules, and calculate your RMD correctly. Some financial institutions might handle this for you, but it's always a good idea to double-check their math.

RMDs now kick in at age 73, with most due by Dec. 31 each year. If you turn 73 in 2024, your first RMD deadline is April 1, 2025. And you'll need to take your next RMD by Dec. 31, 2025.

If RMDs are on your to-do list, make sure to plan ahead so you can put that money to work and make the most of it.

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Bitcoin Price Forecast: BTC battles at key technical zone amid mixed flow signalsBitcoin (BTC) steadies around the key technical support on Tuesday after its recent correction. The Crypto King’s next directional move could hinge on this key technical zone.
Author  FXStreet
11 hours ago
Bitcoin (BTC) steadies around the key technical support on Tuesday after its recent correction. The Crypto King’s next directional move could hinge on this key technical zone.
placeholder
WTI declines below $102.00 after Trump says he called off Iran attacksWest Texas Intermediate (WTI), the US crude oil benchmark, is trading around $101.85 during the early Asian trading hours on Tuesday. The WTI price declines after US President Donald Trump said he was holding off a military attack on Iran planned for Tuesday at the request of Gulf states.
Author  FXStreet
20 hours ago
West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $101.85 during the early Asian trading hours on Tuesday. The WTI price declines after US President Donald Trump said he was holding off a military attack on Iran planned for Tuesday at the request of Gulf states.
placeholder
Iran Situation Rekindles Threat of War. Bitcoin Price Decline Accelerates, $75,000 Geopolitical Defense Line Faces TestU.S.-Israel discussions on resuming strikes against Iran trigger an accelerated Bitcoin price pullback; future gains depend on whether the $75,000 support level holds.On May 18, the poten
Author  TradingKey
Yesterday 09: 03
U.S.-Israel discussions on resuming strikes against Iran trigger an accelerated Bitcoin price pullback; future gains depend on whether the $75,000 support level holds.On May 18, the poten
placeholder
Euro softens to near 1.1600 on US–Iran tensions The EUR/USD pair trades in negative territory around 1.1615 during the early Asian session on Monday. The Euro (EUR) extends the decline as the prolonged US-Iran conflict weighs on the riskier assets.
Author  FXStreet
Yesterday 01: 34
The EUR/USD pair trades in negative territory around 1.1615 during the early Asian session on Monday. The Euro (EUR) extends the decline as the prolonged US-Iran conflict weighs on the riskier assets.
placeholder
Financial Markets 2026: Volatility Catalysts in Gold, Silver, Oil, and Blue-Chip Stocks—A CFD Trader's OutlookGet a comprehensive financial market 2026 outlook exploring key economic drivers, volatility catalysts in gold, oil and stocks, and what the evolving economic outlook means for cfd trading strategies and risk management on global markets.
Author  Rachel Weiss
May 15, Fri
Get a comprehensive financial market 2026 outlook exploring key economic drivers, volatility catalysts in gold, oil and stocks, and what the evolving economic outlook means for cfd trading strategies and risk management on global markets.
goTop
quote