Can I Reinvest My Required Minimum Distribution?

As you approach retirement, understanding the nuances of your financial obligations becomes increasingly important. One such obligation is the Required Minimum Distribution (RMD), a mandate that requires individuals to withdraw a certain amount from their retirement accounts annually, starting at age 73. But what if you don’t need these funds for immediate expenses? Can you reinvest your Required Minimum Distribution to continue growing your wealth? While the IRS requires you to withdraw these funds, it doesn’t dictate how you must 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.” The required minimum distribution addresses 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. That age is:

72 years old if you turn or turned 70 after June 1, 2019;
70.5 (that is, six months after you turn 70) if you turned 70 before June 1, 2019.

After this age, you must begin making what the IRS calls “required minimum distributions,” or RMDs. This is the minimum amount that you must withdraw from your retirement account each year or else you risk facing tax penalties. You can withdraw more than this amount if you would like, but you may not withdraw less.

The reason for this is that 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’s website, required minimum distributions apply to the following accounts:

Required minimum distributions do not apply to Roth IRAs. This is the only significant tax-advantaged retirement account that is omitted from this requirement. You do not have to pay taxes here because you have already paid taxes on the money you invested, so the IRS does not have anything unpaid to collect from you.

How Much Are Required Minimum Distributions?

Your required minimum distribution changes from household to household and year to year. As the IRS describes it: “The required minimum distribution for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s ‘Uniform Lifetime Table.’ A separate table is used if the sole beneficiary is the owner’s spouse who is 10 or more years younger than the owner.”

This is less complicated than it seems. You follow 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 goes down as you get older; and
Divide your account balance by your distribution factor.

Here is the chart for determining your distribution factor (keep in mind that if you turned 70 after June 1, 2019, you don’t have to take an RMD until age 72:

IRA Required Minimum Distributions

Age	Distribution Period
70	27.4
71	26.5
72	25.6
73	24.7
74	23.8
75	22.9
76	22.0
77	21.2
78	20.3
79	19.5
80	18.7
81	17.9
82	17.1
83	16.3
84	15.5
85	14.8
86	14.1
87	13.4
88	12.7
89	12.0
90	11.4
91	10.8
92	10.2
93	9.6
94	9.1
95	8.6
96	8.1
97	7.6
98	7.1
99	6.7
100	6.3
101	5.9
102	5.5
103	5.2
104	4.9
105	4.5
106	4.2
107	3.9
108	3.7
109	3.4
110	3.1
111	2.9
112	2.6
113	2.4
114	2.1
115 and over	1.9

So, for example, say you have $500,000 in your retirement account as of Dec. 31 and, per the Uniform Lifetime Table, have a distribution factor of 25. You would divide $ 500,000 by 25 to get a minimum withdrawal of $20,000 in this calendar year.

Remember that required minimum distributions are calculated per account and year. So, if you have multiple retirement accounts, you must calculate your required minimum distribution for each year’s retirement account.

Can You Reinvest Your Required Minimum Distribution?

You can reinvest your required minimum distribution in any account or asset that is not a tax-advantaged retirement account. So, for example, you could buy stocks, bonds, real estate or any other financial assets with your RMD. However, you could not 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 required minimum distribution money. In general, Roth IRAs are exempt from RMD rules.

In other words, except for Roth IRAs, if the IRS isn’t giving you a tax break on the portfolio, feel free to reinvest the money as you see fit. 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 the options for your 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.