Can I Reinvest My Required Minimum Distribution?

A Required Minimum Distribution (RMD) is a mandatory annual withdrawal from certain retirement accounts, ensuring that taxes are eventually paid on tax-deferred funds. This rule applies to accounts like Traditional IRAs, SEP IRAs, SIMPLE IRAs, and most 401(k) or 403(b) plans. The age to begin RMDs was increased to 73 in 2023 and is set to rise again to age 75 starting in 2033.

The RMD amount is calculated annually based on the prior year-end account balance and a life expectancy factor from IRS tables. For those turning 73, the first RMD must be taken by April 1 of the following year, while all subsequent RMDs are due by December 31. Failing to take the correct distribution on time can result in a 25% penalty on the shortfall, which can be reduced to 10% if the mistake is corrected promptly.

The Reinvestment Rule for RMDs

Once an RMD is withdrawn, it cannot be put back into any tax-advantaged retirement account like a Traditional IRA or 401(k). The government mandates these distributions to collect income tax on savings that have grown tax-deferred for decades.

This restriction means RMDs are ineligible for the 60-day rollover rule that applies to other retirement plan withdrawals. The RMD is a final distribution for that tax year and is reported as taxable income.

If you withdraw more money from your IRA than the calculated RMD, the excess amount may be eligible for a rollover back into a retirement account, provided you follow the specific rollover rules. The portion identified as the RMD, however, must stay out and is subject to ordinary income tax.

Investing RMD Proceeds in a Taxable Account

For individuals who do not need their RMD for living expenses, a common strategy is to invest the proceeds in a taxable brokerage account. You will owe ordinary income tax on the distribution, and the net amount after taxes is yours to invest.

Inside an IRA, funds grow on a tax-deferred basis. Once the post-tax RMD proceeds are moved to a taxable brokerage account, any future earnings, such as dividends, interest, or capital gains, will be subject to tax annually.

Investing in a taxable account offers flexibility, as the funds are not subject to retirement account restrictions on withdrawals. You can buy and sell a wide range of assets like stocks, bonds, and mutual funds.

Using RMDs for Charitable Giving

A tax-advantaged strategy for handling RMDs is the Qualified Charitable Distribution (QCD). This allows an individual aged 70½ or older to transfer funds directly from their IRA to a qualified charitable organization. For 2025, an individual can donate up to $108,000 through a QCD, an amount that is indexed for inflation.

The amount donated can satisfy all or part of your RMD for the year but is excluded from your adjusted gross income (AGI). This is an advantage over taking the RMD, paying tax on it, and then donating cash, which requires you to itemize deductions. Excluding the amount from AGI can help you avoid higher income tax brackets and may reduce how much of your Social Security benefits are taxed.

To execute a QCD correctly, the transfer must be made directly from the IRA custodian to the eligible charity, and the check cannot be made payable to you. While the RMD age is 73, the eligibility age for a QCD remains 70½, allowing you to use this strategy before RMDs are mandatory.