Your Year-End RMD Strategy Guide

Wondering What You Should Do With Your RMD This Year?

If you have a traditional IRA or 401(k), you will generally eventually be required to take annual withdrawals known as required minimum distributions (RMDs). These withdrawals typically begin at age 73 or 75, depending on your birth year and the applicable retirement plan rules. Your RMD is generally calculated using your account balance as of December 31 of the previous year and an IRS life expectancy factor. The larger your retirement account balance, the larger your required withdrawal may be. If you fail to take the required amount by the applicable deadline, you may face an excise tax of 25% on the amount not withdrawn, potentially reduced to 10% if corrected within the applicable correction window.

For retirees who rely on their retirement accounts to cover living expenses, their regular withdrawals may satisfy their RMD requirements. However, what happens if you don’t need some or all your RMD to support your lifestyle? Even when you don’t need the additional income, you must still take the required distribution. This can create a planning challenge, particularly for individuals with substantial retirement savings who may already have sufficient income to cover their expenses.

The good news is that taking an RMD doesn’t mean you have to spend the money. With thoughtful planning, you can put those funds toward other financial goals, including charitable giving, investing, and helping family members. Here are three strategies to consider before taking your year-end distribution.

Qualified Charitable Distributions (QCDs)

If you are charitably inclined, a qualified charitable distribution (QCD) may be worth considering. A QCD allows an eligible IRA owner who is at least age 70½ to transfer funds directly from their IRA to an eligible charitable organization. A qualifying distribution can count toward your RMD while being excluded from taxable income. For 2026, the annual QCD exclusion limit is $111,000 per individual, subject to the applicable rules.

This strategy can be particularly beneficial for individuals who take the standard deduction. Because they don’t itemize deductions, they generally cannot claim a separate federal charitable deduction for their donations. A qualifying QCD instead allows them to support charitable causes while potentially reducing the taxable income associated with their retirement distributions. You cannot claim an additional charitable deduction for the same amount excluded from income.

Consider someone who regularly tithes to their church. If they don’t need their RMD to cover living expenses but still want to maintain their charitable giving, they could arrange for some or all of their eligible IRA distribution to go directly to their church, provided it qualifies under the QCD rules. This allows them to continue supporting a cause they care about while potentially reducing their taxable income.

One important detail: the funds must be transferred directly from the IRA to the eligible charity. If you withdraw the money personally and then write a check to the charity, the withdrawal generally remains taxable, and the donation is subject to the usual charitable deduction rules.

Reinvest Into A Taxable Brokerage Account

If charitable giving isn’t a priority, another option is to reinvest your RMD in a taxable brokerage account. After taking the required distribution, you can use the proceeds to purchase investments that align with your financial goals, time horizon, and risk tolerance.

Although reinvesting the money does not provide an immediate tax benefit or reverse the taxable distribution, it allows you to keep the funds invested rather than leaving them in a low-interest bank account. Once invested, the assets may continue growing and can potentially support future expenses or provide a financial legacy for your heirs.

For example, imagine you have sufficient retirement income from Social Security, a pension, and other investments to cover your living expenses. You may not need the additional funds from your RMD this year. Rather than spending the distribution, you could invest the proceeds in a taxable brokerage account for future needs or other long-term goals.

Keep in mind that investments in a taxable brokerage account may generate taxable interest, dividends, and capital gains. The appropriate investment strategy will depend on your overall financial situation and when you expect to use the funds.

Gifting & Funding 529 Plans

A third option is to use your RMD to help family members financially. For example, you could gift money to children or grandchildren to help with a major purchase, provide financial support, or give them a head start on their own financial goals.

For 2026, you can generally gift up to $19,000 per recipient without using any of your lifetime gift and estate tax exemption, provided the gift qualifies for the annual exclusion. A married couple may be able to give a combined $38,000 per recipient when each spouse makes a qualifying gift or the applicable gift-splitting rules are followed. Gifts above the annual exclusion don’t automatically trigger gift tax, but they may require a gift tax return and reduce the donor’s remaining lifetime exemption. The federal basic exclusion amount is $15 million per individual in 2026.

Another option is contributing to a 529 college savings plan for a child or grandchild. These tax-advantaged accounts are designed to help families save for qualified education expenses. Investment growth and withdrawals are generally federally tax-free when the funds are used for qualified expenses, subject to the applicable rules. Contributions are gifts for federal gift tax purposes, and special rules may allow you to make a larger contribution over five years for gift tax purposes by making the appropriate election.

You can also pay tuition directly to an eligible educational institution on behalf of someone else. Under federal gift tax rules, direct tuition payments are generally excluded from gift tax and do not count against your annual gift tax exclusion or lifetime exemption. The payment must be made directly to the institution, and the exclusion applies to tuition rather than expenses such as room and board.

These strategies allow you to use excess retirement distributions to support the next generation while keeping gift and education planning considerations in mind. Remember, however, that the RMD itself generally remains taxable to you even if you subsequently gift the money or contribute it to a 529 plan.

Required minimum distributions are a reality for many retirees, but taking the money out of your retirement account doesn’t mean you have to spend it. If you don’t need your RMD to cover living expenses, you have several options to put those funds to work, whether that means supporting a charitable organization, reinvesting for future growth, or helping family members achieve their financial goals.

The best strategy depends on your circumstances, including your income needs, tax situation, charitable intentions, and long-term priorities. Before year-end, take time to evaluate how your RMD fits into your broader financial plan. With the right approach, a required withdrawal can become an opportunity to make meaningful progress toward the goals that matter most to you.