Smart ways to make the most of RMDs you don’t currently need
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Reaching your early 70s and realizing you don’t need every penny from your required minimum distributions (RMDs) is a good problem to have.
It means your financial planning has paid off and you now have an important decision to make—how to best use money you must withdraw even if your living expenses are already covered.
While the IRS requires these withdrawals, it doesn’t dictate how you spend them, which opens the door to creative and strategic possibilities.
Whether you want to grow your wealth, help family, or support causes you care about, there are several options to explore.
With some planning, these mandatory distributions can become a powerful tool for both your finances and your legacy.
Understanding RMDs and why they matter
RMDs are mandatory withdrawals from most pretax retirement accounts, such as traditional IRAs and 401(k)s, starting at age 73.
If you miss a withdrawal, the IRS can impose a penalty of up to 25% of the required amount.
Your first RMD must be taken by April 1 of the year after you turn 73, with subsequent withdrawals due by December 31 each year.
Many retirees find they don’t need these funds because Social Security, pensions, rental income, or part-time work cover their expenses.
According to the Federal Reserve, 81% of retirees have at least one source of private income in addition to Social Security.
If that’s your situation, you have the opportunity to make thoughtful choices about what to do with the extra cash.
Also read: Avoid these costly 4 retirement planning errors that could derail your finances in 2025!
Option 1: Reinvest for continued growth
Having to withdraw the funds doesn’t mean they should sit idle in a low-interest account.
You can reinvest your RMDs in a taxable brokerage account, keeping your money working for you.
Many financial planners recommend exchange-traded funds (ETFs) because they tend to be more tax-efficient than mutual funds and are less likely to generate capital gains during the year.
“It’s also easier for tax-loss harvesting,” said Judy Brown, a certified financial planner and certified public accountant with C&H Group in the Washington DC and Baltimore area.
ETFs also trade like stocks, giving you flexibility on when to buy or sell.
Also read: Don’t let 25% of your benefits slip away—Time is running out!
Option 2: Donate directly to charity
For those inclined to give back, qualified charitable distributions (QCDs) can be a smart move.
Starting at age 70½, you can transfer up to $108,000 annually (as of 2025) from your IRA directly to a qualified charity.
This amount counts toward your RMD but does not increase your taxable income, which can help you avoid higher Medicare premiums and keep more of your Social Security benefits tax-free.
“It’s the IRS’ best-kept secret for retirees,” said Ashton Lawrence, a CFP with Mariner Wealth Advisors in Greenville, South Carolina.
Also read: Maximize Your Retirement Funds: Smart Strategies for Unneeded Withdrawals!
Option 3: Fund education for future generations
If leaving a legacy matters to you, consider using RMDs to contribute to a 529 college savings plan.
Over 30 states offer a state tax deduction or credit for these contributions, although there’s no federal deduction.
Even if the tax break is modest, it can give children or grandchildren a valuable head start on education and help them avoid student debt.
“It’s not going to be enough to offset all of their state [income] taxes,” Brown said, “but you can get a benefit going for the grandchildren.”
Be aware that to claim a state tax benefit, you usually need to contribute to your own state’s plan.
Also read: Why retirement savings feel harder than ever—and how Americans are adapting
Other smart uses for RMDs
Also read: The simple mistake that wiped out a man’s entire retirement savings
Tax tips and things to watch out for
If your RMDs aren’t needed for daily expenses, they can become a valuable tool for growing wealth, supporting family, or giving to charity.
With the right strategy, these withdrawals can work for you rather than simply feeling like a tax requirement.
Read next: Worried about Social Security? Here are 3 ways to boost your income in retirement
How would you make the most of your RMDs if you didn’t need them for everyday expenses? Would you reinvest for future growth, support a cause you care about, or give a boost to your family’s financial future?
Share your thoughts and ideas in the comments—we’d love to hear how you’d put these funds to work.
It means your financial planning has paid off and you now have an important decision to make—how to best use money you must withdraw even if your living expenses are already covered.
While the IRS requires these withdrawals, it doesn’t dictate how you spend them, which opens the door to creative and strategic possibilities.
Whether you want to grow your wealth, help family, or support causes you care about, there are several options to explore.
With some planning, these mandatory distributions can become a powerful tool for both your finances and your legacy.
Making the most of your RMDs can help you grow wealth, give back, and support loved ones without wasting a single dollar. Image Source: Pexels / MART PRODUCTION.
Understanding RMDs and why they matter
RMDs are mandatory withdrawals from most pretax retirement accounts, such as traditional IRAs and 401(k)s, starting at age 73.
If you miss a withdrawal, the IRS can impose a penalty of up to 25% of the required amount.
Your first RMD must be taken by April 1 of the year after you turn 73, with subsequent withdrawals due by December 31 each year.
Many retirees find they don’t need these funds because Social Security, pensions, rental income, or part-time work cover their expenses.
According to the Federal Reserve, 81% of retirees have at least one source of private income in addition to Social Security.
If that’s your situation, you have the opportunity to make thoughtful choices about what to do with the extra cash.
Also read: Avoid these costly 4 retirement planning errors that could derail your finances in 2025!
Option 1: Reinvest for continued growth
Having to withdraw the funds doesn’t mean they should sit idle in a low-interest account.
You can reinvest your RMDs in a taxable brokerage account, keeping your money working for you.
Many financial planners recommend exchange-traded funds (ETFs) because they tend to be more tax-efficient than mutual funds and are less likely to generate capital gains during the year.
“It’s also easier for tax-loss harvesting,” said Judy Brown, a certified financial planner and certified public accountant with C&H Group in the Washington DC and Baltimore area.
ETFs also trade like stocks, giving you flexibility on when to buy or sell.
Also read: Don’t let 25% of your benefits slip away—Time is running out!
Option 2: Donate directly to charity
For those inclined to give back, qualified charitable distributions (QCDs) can be a smart move.
Starting at age 70½, you can transfer up to $108,000 annually (as of 2025) from your IRA directly to a qualified charity.
This amount counts toward your RMD but does not increase your taxable income, which can help you avoid higher Medicare premiums and keep more of your Social Security benefits tax-free.
“It’s the IRS’ best-kept secret for retirees,” said Ashton Lawrence, a CFP with Mariner Wealth Advisors in Greenville, South Carolina.
Also read: Maximize Your Retirement Funds: Smart Strategies for Unneeded Withdrawals!
Option 3: Fund education for future generations
If leaving a legacy matters to you, consider using RMDs to contribute to a 529 college savings plan.
Over 30 states offer a state tax deduction or credit for these contributions, although there’s no federal deduction.
Even if the tax break is modest, it can give children or grandchildren a valuable head start on education and help them avoid student debt.
“It’s not going to be enough to offset all of their state [income] taxes,” Brown said, “but you can get a benefit going for the grandchildren.”
Be aware that to claim a state tax benefit, you usually need to contribute to your own state’s plan.
Helping future generations get ahead—RMD contributions to a 529 plan can provide valuable education savings and potential state tax benefits. Image Source: Pexels / Mikhail Nilov.
Also read: Why retirement savings feel harder than ever—and how Americans are adapting
Other smart uses for RMDs
- Pay down debt: Eliminating mortgages, car loans, or credit card balances can free up future cash flow and save on interest.
- Boost your emergency fund: A high-yield savings account can provide peace of mind for unexpected expenses.
- Give to family: You can give up to $18,000 per year (as of 2024) to as many people as you like without triggering gift taxes.
- Invest in yourself: Use the funds for a dream trip, a new hobby, or continuing education.
Also read: The simple mistake that wiped out a man’s entire retirement savings
Tax tips and things to watch out for
- Know your state tax rules: Some states tax retirement income while others do not, so check before making major moves.
- Watch your Medicare premiums: Higher income can raise Part B and D costs, but QCDs can help you stay under important thresholds.
- Avoid the “double RMD” trap: If you delay your first RMD until April 1 of the following year, you’ll need to take two withdrawals that year—potentially pushing you into a higher tax bracket.
If your RMDs aren’t needed for daily expenses, they can become a valuable tool for growing wealth, supporting family, or giving to charity.
With the right strategy, these withdrawals can work for you rather than simply feeling like a tax requirement.
Read next: Worried about Social Security? Here are 3 ways to boost your income in retirement
How would you make the most of your RMDs if you didn’t need them for everyday expenses? Would you reinvest for future growth, support a cause you care about, or give a boost to your family’s financial future?
Share your thoughts and ideas in the comments—we’d love to hear how you’d put these funds to work.
