Can I Reinvest My Required Minimum Distribution?

As you approach retirement, understanding the nuances of your financial obligations becomes increasingly important. Required minimum distributions (RMD) are a mandate that require individuals to withdraw a certain amount from their pre-tax retirement accounts annually, starting at age 73. But what if you don’t need these funds for immediate expenses? Can you reinvest your RMD to continue growing your wealth? While the IRS requires you to withdraw these funds, it doesn’t dictate how you can use them. This can open up a world of possibilities for reinvestment.

For more help with retirement investments, consider working with a financial advisor.

What Is a Required Minimum Distribution?

As the IRS puts it, “You cannot keep retirement funds in your account indefinitely.”

RMDs address that issue. When you have a tax-advantaged retirement account, like a 401(k) or an IRA, the IRS requires you to begin making withdrawals once you reach the maximum age. This age depends on when you were born.

RMDs begin at age 73 for those born between 1951 and 1959. Starting in 2033, those born in 1960 or later will begin RMDs at age 75.

After this age, you must begin making required minimum distributions. This is the minimum amount that you must withdraw from your retirement account each year. You can withdraw more than this amount if you would like, but you may not withdraw less. Otherwise, you risk tax penalties.

This is because your withdrawals are included in your taxable income. Tax-advantaged retirement accounts allow you to defer paying taxes on certain portions of your income until retirement, but eventually, the IRS would like to get this money. Minimum distributions ensure that you begin paying taxes on your retirement account eventually.

Per the IRS, RMDs apply to several types of retirement accounts.

RMDs do not apply to accounts funded with after-tax dollars, like Roth IRAs and Roth 401(k)s. In this case, you do not have to pay taxes on qualified withdrawals because you have already paid taxes on the money you invested. Therefore, the IRS has nothing to collect from you.

How Much Are Required Minimum Distributions?

Your RMD changes from year to year, according to the IRS Uniform Lifetime Table (or one of two other tables, depending on whether you own or inherited the account).

You can calculate your RMDs with three steps.

Find your account balance as of Dec. 31 in the preceding year.
Find your applicable distribution factor, which is generally age-based and decreases as you age.
Divide your account balance by your distribution factor.

Skip the manual math with our RMD calculator. Just enter your age and retirement account balances to instantly see how much you need to withdraw and when.

Required Minimum Distribution (RMD) Calculator

Estimate your next RMD using your age, balance and expected returns.

Quickly estimate your RMDs and when to take them

RMD Amount for IRA(s)

$--

RMD Amount for 401(k) #1

$--

RMD Amount for 401(k) #2

$--

About This Calculator

This calculator estimates RMDs by dividing the user's prior year's Dec. 31 account balance by the IRS Distribution Period based on their age. Users can enter their birth year, prior-year balances and an expected annual return to estimate the timing and amount of future RMDs.

For IRAs (excluding Roth IRAs), users may combine balances and take the total RMD from one or more accounts. For 401(k)s and similar workplace plans*, RMDs must be calculated and taken separately from each account, so balances should be entered individually.

^*The IRS allows those with multiple 403(b) accounts to aggregate their balances and split their RMDs across these accounts.

Assumptions

This calculator assumes users have an RMD age of either 73 or 75. Users born between 1951 and 1959 are required to take their first RMD by April 1 of the year following their 73rd birthday. Users born in 1960 and later must take their first RMD by April 1 of the year following their 75th birthday.

This calculator uses the IRS Uniform Lifetime Table to estimate RMDs. This table generally applies to account owners age 73 or older whose spouse is either less than 10 years younger or not their sole primary beneficiary.

However, if a user's spouse is more than 10 years younger and is their sole primary beneficiary, the IRS Joint and Last Survivor Expectancy Table must be used instead. Likewise, if the user is the beneficiary of an inherited IRA or retirement account, RMDs must be calculated using the IRS Single Life Expectancy Table. In these cases, users will need to calculate their RMD manually or consult a finance professional.

For users already required to take an RMD for the current year, the calculator uses their account balance as of December 31 of the previous year to compute the RMD. For users who haven't yet reached RMD age, the calculator applies their expected annual rate of return to that same prior-year-end balance to project future balances, which are then used to estimate RMDs.

This RMD calculator uses the IRS Uniform Lifetime Table, but certain users may need to use a different IRS table depending on their beneficiary designation or marital status. It's the user's responsibility to confirm which table applies to their situation, and tables may be subject to change.

Actual results may vary based on individual circumstances, future account performance and changes in tax laws or IRS regulations. Estimates provided by this calculator do not guarantee future distribution amounts or account balances. Past performance is not indicative of future results.

SmartAsset.com does not provide legal, tax, accounting or financial advice (except for referring users to third-party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). Articles, opinions and tools are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. Users should consult their accountant, tax advisor or legal professional to address their particular situation.

For example, say you are 73 and had $500,000 in your retirement account at the end of the previous year. You would divide your account balance by your life expectancy factor (26.5) to get an RMD of approximately $18,868.

Each of your retirement accounts has its own RMD calculation. However, if you hold more than one traditional IRA, you’re allowed to withdraw the combined total from any one of those accounts. In contrast, RMDs from 401(k)s and other workplace plans must be taken separately from each account.

Can You Reinvest Your Required Minimum Distribution?

You can reinvest your RMD in any account or asset that is not a tax-advantaged retirement account. That means you can buy stocks, bonds, real estate or any other financial assets with your RMD. However, you cannot put this money into an IRA or a 401(k).

The exception to this rule is the Roth IRA. If you are eligible to put money into a Roth IRA, you can do so with RMD money. In general, Roth IRAs are exempt from RMD rules. Working with a financial advisor can help you determine the best options for your own portfolio and long-term goals.

Bottom Line

As you consider your financial strategies, understanding your options for RMDs is crucial. While you cannot directly reinvest your RMD back into the same retirement account, there are several ways to make the most of these funds. One popular approach is to reinvest the distribution into a taxable brokerage account, allowing you to continue growing your wealth outside of tax-advantaged accounts. This strategy can help maintain the momentum of your investment portfolio while adhering to IRS regulations.

Retirement Planning Tips

A financial advisor will be able to help you make decisions about your retirement savings and withdrawals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Long before you can take money out of your retirement account, you need to start putting money in. With SmartAsset’s retirement calculator, you can see just how much money you’ll need to start saving up for that perfect retirement… whenever you plan on taking it.