There’s still every reason to make the most of every dollar at this later stage of life,adn you’ve got plenty of ways to continue doing so. For many Americans aged 73 and older in 2025, the reality of Required Minimum Distributions (RMDs) from their retirement accounts is here. But don’t let these withdrawals feel like a setback. Instead, view them as an opportunity to strategically manage your finances and enhance your retirement security.

The IRS mandates RMDs for those with conventional IRAs, 401(k)s, and similar retirement plans to ensure that taxes are eventually paid on previously tax-deferred savings. Understanding how to navigate RMDs effectively can make a significant difference in preserving your wealth and achieving your financial goals.

Here’s a closer look at five strategies to help you make the most of your RMDs in 2025 and beyond.

1. Allocate (or Reallocate) with taxability in mind

For years, the gains and investment income within your IRA grew tax-deferred. now that RMDs are in play, the tax landscape shifts.Required minimum distributions are taxable, and reinvesting these funds creates future tax liabilities. Thus, strategic asset allocation becomes crucial.

If you need immediate income, be aware that dividends are taxed as ordinary income in the year they’re received.For those seeking tax-efficient growth, consider reasonably safe growth stocks. capital appreciation is onyl taxed when you sell the assets, offering greater control over your tax obligations.

The key takeaway: Your tax situation is evolving, presenting new taxation considerations. Plan accordingly to minimize your tax burden and optimize your investment returns.

Real-World Example: Consider a retiree in California who uses their RMD to purchase shares of a dividend-paying stock. They need to factor in both federal and California state income taxes on those dividends. conversely,another retiree might reinvest their RMD into a low-turnover index fund,deferring taxes on capital gains until a later date.

2. Make a Qualified Charitable Distribution (QCD)

If charitable giving is part of your financial plan, a qualified charitable Distribution (QCD) can be a highly effective strategy.The IRS allows individuals age 70½ and older to donate up to $108,000 (in 2025) directly from their IRA to a qualified charity. This donation counts toward your RMD but isn’t included in your adjusted gross income (AGI), potentially reducing your tax liability.

As the name suggests, qualified charitable distributions are direct transfers of cash or assets from an IRA to a legitimate charity. Not only will QCDs that are big enough fully meet your required distribution for any given year, they may also make it easier and more tax-cost-effective than personally accepting these funds first and then passing them along to the charity of your choice.

This year’s qualified charitable distribution cap is $108,000 per person.

You can make a QCD and take a taxable distribution in the same year, ensuring you meet your full RMD requirement. However, prioritize the QCD to avoid the IRS’s “first dollars out” rule, which could lead to unintended taxation of both withdrawals. Consult with a tax advisor to ensure proper execution.

Additional Insight: the QCD can be particularly beneficial for those who itemize deductions but may not exceed the standard deduction threshold. By using a QCD, you can effectively receive a tax benefit for your charitable contributions even if you don’t itemize.

Counterargument: Some argue that donating appreciated stock directly to a charity from a taxable brokerage account is a better option, as it allows you to deduct the fair market value of the stock while avoiding capital gains taxes. However, this strategy doesn’t satisfy RMD requirements, making the QCD a more suitable choice for those seeking to fulfill both obligations.

3. Use This Distribution to Pay the Taxes on a Roth Conversion

While RMDs are generally treated as taxable income, you can leverage them to fund a Roth IRA conversion. By converting a portion of your traditional IRA to a Roth IRA, you pay taxes on the converted amount now but enjoy tax-free growth and withdrawals in retirement.

Converting some or all of your retirement account to a Roth IRA isn’t a decision to be taken lightly. Not only is it not reversible once done, its taxable in its entirety for the year in which the conversion is completed. That means your going to have to come up with a bunch of money to pay the resulting tax bill; you may even get bumped into a higher tax bracket. You also generally can’t withdraw this money for a period of five years following the conversion without being penalized for doing so.

This strategy can be particularly attractive if you anticipate being in a higher tax bracket in the future or want to leave a tax-free inheritance to your heirs. Market downturns can also present favorable conversion opportunities, as lower IRA values result in a smaller tax bill.

If you’re taking an RMD this year, though, you’ll have at least a decent-sized chunk of cash to work with, plus you’ll never have to worry about required minimum distributions again. See, not only are distributions from Roth accounts not taxable after five years, but they’re never subject to RMDs.

Vital Considerations: Roth conversions are irreversible and can significantly impact your current tax situation. Consult a qualified financial professional to assess the suitability of this strategy based on your individual circumstances.

Case Study: John, a 74-year-old retiree, converts $50,000 from his traditional IRA to a Roth IRA in 2025. He uses $15,000 of his RMD to pay the taxes on the conversion. Although he incurs a tax liability in the current year, he benefits from tax-free growth and withdrawals in the future, potentially saving him thousands of dollars in taxes over his lifetime.

4. Wait for the Market to Be Up Rather Than Down

while a roth conversion might be more advantageous when the market is down, if your primary goal is to maximize the amount of money remaining in your IRA, consider taking your RMD when the market is up.

what’s not etched in stone, however, is your retirement account’s value over the course of that 12-month stretch after your RMD is calculated. If you’d like to leave proportionally more of your money in your IRA, taking your required minimum distribution when the market is up and your assets’ values are elevated will help you do so.

By waiting for a market upswing, you withdraw a smaller percentage of your overall portfolio, allowing the remaining assets to continue growing tax-deferred. Though, avoid trying to time the market perfectly. “Good enough” is arguably good enough.”

Practical Submission: Monitor your investment portfolio and economic indicators. If you anticipate a market correction, consider taking your RMD sooner rather than later. Conversely, if the market is experiencing a strong rally, waiting until later in the year might be a more prudent approach.

5. Put It Back Into an IRA? (Indirectly)

While you can’t directly recontribute your RMD back into a retirement account, you can indirectly replenish your retirement savings through other means. The IRS allows individuals under age 75 to contribute to a traditional IRA, provided they have earned income. If you’re still working, you can use your RMD to fund your lifestyle expenses and then contribute an equivalent amount of your earned income to your IRA.

Although there’s no means of directing RMDs directly back into a retirement account (nor would you want there to be, since your required minimum distribution is unlikely to be the exact amount of money you’re looking to put back in an IRA for that same year), the IRS doesn’t care if it’s your RMD money that makes it possible for you to also make a contribution back into a conventional IRA. Just be prepared for a few more entries and calculations than average when you’re filing your annual taxes.

Important Note: Contribution limits apply to IRA contributions.For 2025, the contribution limit for those under 50 is $7,000, with a $1,000 catch-up contribution for those age 50 and over.

Counterargument: Some financial advisors argue that prioritizing tax-advantaged accounts like 401(k)s or HSAs is more beneficial than contributing to a traditional IRA, especially if you’re already receiving employer matching contributions or have access to a high-deductible health plan. Carefully evaluate your financial situation and prioritize the accounts that offer the most tax benefits.

RMD Rules for Inherited Accounts

RMDs can also apply to inherited retirement accounts. if the deceased had not taken their RMD for the year of their death, you, as the beneficiary, must generally take a distribution for them by December 31 of that year. Moreover, if you are an heir of RMD age, you might also be subject to your own RMDs from the inherited account, depending on the specific rules and regulations governing inherited IRAs and other retirement plans. Refer to IRS guidelines to fully understand your specific obligations.

RMD Exceptions

While RMDs are generally required from most retirement accounts, there are exceptions. Roth 401(k), 403(b), or 457(b) accounts (designated Roth accounts) do not require RMDs during the account holder’s lifetime. This offers added adaptability for those who prefer to keep their assets growing tax-free for a longer period.

Understanding the RMD Landscape: A Swift Guide

By implementing these strategies, you can transform your RMDs from a mandatory withdrawal into a powerful tool for enhancing your retirement finances. remember to consult with a qualified financial advisor and tax professional to tailor these strategies to your specific needs and circumstances.