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 Eyes $124,000 As Golden Ratio Signals More Gains Ahead – DetailsProminent crypto analyst Burak Kesmeci has tipped Bitcoin (BTC) to hit a price target of $124,000 based on data from the Golden Ratio Multiplier price model.
Author  FXStreet
Apr 28, 2025
Prominent crypto analyst Burak Kesmeci has tipped Bitcoin (BTC) to hit a price target of $124,000 based on data from the Golden Ratio Multiplier price model.
placeholder
Silver Price Forecast: XAG/USD marks fresh 14-year highs near $41.00Silver price (XAG/USD) following its six-day winning streak, trading around $40.98 per troy ounce on Wednesday, the highest since September 2011.
Author  FXStreet
Sep 03, 2025
Silver price (XAG/USD) following its six-day winning streak, trading around $40.98 per troy ounce on Wednesday, the highest since September 2011.
placeholder
Japanese Yen rises on strong data, USD pressured by Fed rate cut bets ahead of US NFPThe Japanese Yen (JPY) strengthened against its American counterpart during the Asian session on Friday in response to upbeat domestic data.
Author  FXStreet
Sep 05, 2025
The Japanese Yen (JPY) strengthened against its American counterpart during the Asian session on Friday in response to upbeat domestic data.
placeholder
Markets in 2026: Will gold, Bitcoin, and the U.S. dollar make history again? — These are how leading institutions thinkAfter a turbulent 2025, what lies ahead for commodities, forex, and cryptocurrency markets in 2026?
Author  Insights
Dec 25, 2025
After a turbulent 2025, what lies ahead for commodities, forex, and cryptocurrency markets in 2026?
placeholder
Gold gains momentum above $4,100 after weak US NFP data Gold price (XAU/USD) gains traction to around $4,125 during the early Asian session on Friday. The precious metal extends the rally after weaker-than-expected US Nonfarm Payrolls ‌(NFP) data reduced expectations of Federal Reserve (Fed) interest rate hikes this year.
Author  FXStreet
Jul 03, Fri
Gold price (XAU/USD) gains traction to around $4,125 during the early Asian session on Friday. The precious metal extends the rally after weaker-than-expected US Nonfarm Payrolls ‌(NFP) data reduced expectations of Federal Reserve (Fed) interest rate hikes this year.
goTop
quote