Saving for retirement in an IRA or 401(k) comes with a big advantage. Any contributions you make are tax deductible in the year you make them. On top of that, you don't pay any taxes on your investments until you withdraw money from your accounts. Those tax advantages make retirement accounts a great way to build your retirement savings throughout your career.
But you can't avoid taxes forever. Eventually, the IRS comes asking for its piece of the pie by imposing required distributions from your tax-advantaged retirement accounts. Anyone age 73 or older must take a required minimum distribution, or RMD, from their accounts by the end of the year. Failing to take an RMD on time comes with stiff penalties of up to 25% of the amount you were required to withdraw. Even beneficiaries holding an inherited IRA could be subject to RMDs.
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But if you saved a lot of money for retirement and you're now facing a bigger required minimum distribution than you actually need for living expenses, you may be wondering how to handle it. Here are three ways to strategically use your RMD to maximize your retirement savings and minimize your taxes in retirement.
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1. Reinvest your RMD
Just because you have to take a distribution from your retirement accounts doesn't mean you can't keep that money invested. In fact, if you're planning on leaving some money for your heirs, it's better to leave them a big taxable brokerage account than a big IRA. An IRA will be subject to RMDs and possibly the 10-year rule, while assets in a brokerage account receive a step-up in cost basis reducing the tax burden for your heirs.
You don't even have to sell your investments in your retirement account to take your RMD if you plan to keep the funds invested. You can take an in-kind distribution, where the assets are transferred directly to your taxable brokerage account without selling them first. For tax purposes, your cost basis will be whatever the value of the investments are upon transferring them.
It's important to note that in-kind transfers do pose the risk of undershooting your required minimum distribution amount. That's because the value of securities is constantly changing, so ensuring you transfer enough of your investments out to fully cover your RMD is key. It might make sense to withdraw some assets in-kind and then figure out the additional amount you'll have to withdraw in cash to meet your RMD.
If you want to get the most out of this strategy, it makes sense to take your RMD early in the year. You can reasonably expect your investments to increase in value over time. Taking your RMD to reinvest early in the year means you can withdraw more of your investments from your account, reducing future RMDs and giving your taxable investments more time to grow.
2. Give more to charity
If you're charitably inclined and your RMDs are more than you need you can give some of that money to charity. But you don't have to withdraw cash from your IRA and then send that to a non-profit, there's a much more efficient way to donate with some big tax advantages. You can use a qualified charitable distribution, or QCD.
A QCD is a direct distribution from your IRA to a qualified non-profit. The QCD will count toward your RMD for the year, and you can donate up to $108,000 in 2025. That's a per-person limit, so if you and your spouse are both sitting on substantial IRAs, your household can donate up to $216,000.
Note, the QCD only applies to IRAs, so if you have other retirement accounts like a 401(k), you'll have to take RMDs from them. However, you may be able to roll over those accounts into an IRA.
The QCD is a powerful tool to reduce your taxes in retirement. Since the distribution goes directly from your retirement account to the non-profit, it has no impact on your income for the year. That means you don't have to itemize your tax deductions to get the tax savings for your charitable contribution. Considering a married couple in their 70s can take a standard deduction of $33,200 in 2025, most seniors will likely take that if they don't have itemized charitable contributions. Additionally, since the QCD doesn't affect your adjusted gross income, you could qualify for lower Medicare Part B premiums and reduce the taxes on your Social Security income.
A QCD is a great strategy for anyone in their 70s to donate even if you won't even come close to maxing out the $108,000 limit.
3. Pay your taxes with your RMD
Many retirees have to pay estimated taxes throughout the year because they don't have any withholding from a paycheck. That usually requires you to make equal payments each quarter. But paying estimated taxes before you know how much income you'll actually report, let alone what you'll owe in taxes, can be difficult. You could rely on safe harbor rules, but you could forgo estimated taxes altogether and use your RMD to pay them instead.
When you take your RMD, your broker will ask how much of it you want withheld for tax purposes. Importantly, any amount withheld for taxes by your brokerage is deemed to have been paid throughout the year. In other words, it's as if the amount withheld was paid in quarterly installments by their usual due date.
So, if you take your RMD in December, when you have a good idea of how much tax you'll owe for the year, you can set it up so your brokerage withholds enough in taxes to make up for any missed estimated payments. That ensures you won't get hit with any late-payment penalties and it gives your other investments time to continue compounding in your taxable brokerage account.
This strategy can be great for retirees with variable income from capital gains or a small business.
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