See the 3 smart RMD strategies — spend it, reinvest it, or gift it via QCD — from a fee-only fiduciary advisor.
There is no single "best" thing to do with RMD money — the right move depends on your income needs, tax situation, and giving goals. Most retirees fall into one of three paths: spend it to fund lifestyle needs, reinvest it in a taxable brokerage account if you don't need the cash, or gift it through a Qualified Charitable Distribution (QCD) if you're charitably inclined. Each option carries different tax consequences, and the right choice often changes from year to year. This guide breaks down all three so you can decide which fits your situation.
A Required Minimum Distribution (RMD) is the minimum amount the IRS requires you to withdraw each year from tax-deferred retirement accounts — such as a Traditional IRA, 401(k), or 403(b) — once you reach the applicable RMD age. RMDs exist because the IRS wants to start collecting tax on money that has grown tax-deferred for decades. The amount is calculated based on your account balance and IRS life expectancy tables, and it's added to your taxable income for the year unless you use a strategy like a QCD.
Once the RMD is withdrawn and taxes are paid (if applicable), the money is yours to use however makes sense for your financial plan. That's where the real decision begins.
The best thing to do with RMD money is to match it to a clear purpose: covering living expenses, growing your long-term wealth, or supporting causes you care about. At Oak Road Wealth Management, we find that nearly every client's RMD strategy falls into one of three categories — spend it, reinvest it, or gift it. None of these is universally "better." The right answer depends on whether you actually need the income, your current tax bracket, and your charitable intentions.
Direct Answer: If you rely on your RMD to cover everyday living expenses, spending it is often the simplest and most appropriate choice.
For many retirees, RMDs are a core part of retirement income — used to pay for housing, healthcare, travel, or general lifestyle costs. If this describes your situation, there's no need to overcomplicate the decision. The distribution is taxed as ordinary income, and the after-tax proceeds go directly toward supporting your day-to-day life. The main planning consideration here is making sure withdrawals are timed and sized appropriately to avoid unnecessary tax bracket creep or Medicare IRMAA surcharges.
Direct Answer: If you don't need the RMD for current expenses, reinvesting it in a taxable brokerage account keeps the money working toward your long-term goals.
Many retirees are surprised to find they don't actually need their full RMD to live on — Social Security, pensions, and other income sources may already cover expenses. In this case, taking the RMD (which is mandatory regardless of need), paying the associated tax, and reinvesting the remainder in a brokerage account allows the money to continue growing. This shifts future growth from tax-deferred to taxable treatment, which introduces different considerations around capital gains and estate planning — but it keeps your wealth invested and working rather than sitting idle.
Direct Answer: If you're charitably inclined, the most tax-efficient way to gift RMD money is a Qualified Charitable Distribution (QCD) sent directly from your IRA to a qualified charity.
A QCD allows IRA owners age 70½ or older to transfer up to the annual IRS limit directly from their IRA to a qualifying charity. The distributed amount counts toward satisfying your RMD but is excluded from your taxable income — meaning you support a cause you care about while potentially lowering your adjusted gross income (AGI). This can have downstream benefits, including reduced exposure to Medicare IRMAA surcharges and a lower taxable income floor. The key requirement is that the funds must go directly from the IRA custodian to the charity — writing yourself a check first and donating it afterward does not qualify as a QCD.
The right RMD strategy depends on three questions:
Some retirees actually use a blend of all three — spending a portion, reinvesting a portion, and gifting a portion — rather than picking just one. This is where working with a fee-only fiduciary advisor can help, since the optimal mix often shifts year to year based on tax law changes, market performance, and personal circumstances.
The best use of RMD money depends on your personal financial picture. Most retirees either spend it to cover living expenses, reinvest it in a taxable brokerage account, or gift it through a Qualified Charitable Distribution (QCD) to reduce taxable income while supporting charity.
Yes. RMDs are mandatory once you reach the applicable age, regardless of whether you need the funds for living expenses. Failing to take the full RMD can result in a significant IRS penalty.
A QCD is a direct transfer of funds from your IRA to a qualified charity. It counts toward satisfying your RMD but is excluded from your taxable income, making it one of the most tax-efficient ways to give to charity in retirement.
Yes. You can split your RMD — taking a portion as taxable income and directing the remainder as a QCD to charity — as long as the total satisfies your required distribution amount.
If you don't need your RMD for current expenses, reinvesting it in a taxable brokerage account can keep the money growing for future goals, legacy planning, or later-life expenses. This shifts the funds from tax-deferred to taxable growth, so it's worth reviewing the tax implications with a fiduciary advisor.
A fee-only fiduciary financial planner — one who is legally required to act in your best interest and doesn't earn commissions on products — can help you weigh the tax, income, and estate planning implications of each option. Oak Road Wealth Management, based in Lee's Summit, Missouri, works with clients nationally to build personalized RMD strategies.
This article is for informational purposes only and does not constitute personalized financial, tax, or legal advice. Please consult a qualified advisor regarding your specific situation.
Written by Andrew Matz, Financial Planner at Oak Road Wealth Management.
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