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Required Minimum Distributions (RMDs) can drive many retirees wild. I’ve met many who are frustrated by the idea of the government telling them when to take their money — or face a significant penalty. The good news? If you don’t need the funds, you actually have some genuinely useful options. Let’s talk about them.
In our practice helping dozens of retirees, I’ve found there are a few strategies that tend to be particularly effective. First, let’s cover a few rules around RMDs, and then the 3 things that can help retirees who don’t need some (or all) of their Required Minimum Distribution.
The Basics of RMDs
When you reach age 73 or age 75, you are required to take a minimum distribution each year from your pre-tax retirement accounts, such as a traditional IRA or 401(k). The age depends on your birth year — age 73 if you were born between 1951 and 1959, or age 75 if you were born in 1960 or later.
These distributions often frustrate retirees, specifically ones who do not need the funds. However, this money has been tax-deferred, so the IRS is expecting the revenue will trickle in when you turn the magic age.
How To Calculate It
In the year in which you turn 73 (or the year in which you turn 75 if you were born in 1960 or later), you are required to take your first RMD. There is a rule that says you have up to April 1st of the following year to defer your first year’s RMD, but it otherwise follows a calendar year schedule. Note: deferring your first RMD means you’ll have two RMDs in that second year, which can push your income higher — something worth discussing with your advisor.
It’s calculated by taking your end of year account value in your pre-tax account, and dividing that number by the IRS life expectancy factor found in the IRS Uniform Lifetime Table.
Fidelity has a good 2 page PDF which shows this information and a table for 2026.
As you may note on the table, the divisor figure (your life expectancy factor) goes down each year. Your account balance may stay level, go up, or go down depending on how much you withdrew and account performance. Therefore, your RMD will be determined by those 2 factors.
This matters for several reasons, but the biggest one is likely to be your taxable income. RMDs are taken from traditional, or pre-tax accounts. Withdrawals from these accounts are taxable as ordinary income, meaning the more you withdraw, the further up your ordinary income bracket you go.
Penalties for Missed RMDs
The penalty for a missed RMD has gotten less severe, but it’s still one to avoid. For every missed RMD, you’re subject to a 25% penalty of the amount you should have taken. For example, if you have a $10,000 RMD and did not take it, you’d be subject to a $2,500 penalty.
In the event it’s caught in a reasonable amount of time and self-corrected, you can decrease that penalty to 10%.
Ideally, it’s best to avoid a penalty altogether. You have the full calendar year to take your RMD, so it’s wise to plan ahead.
A Quick Example
In the event a single filer is living off of some part-time income, Social Security income, and interest and dividends, here is an example of someone making $86,000 of adjusted gross income:
This person has just crossed the 12% threshold, and is below the first IRMAA threshold.
However, an RMD of $37,000 changes things a bit:
We nearly fill up the 22% bracket, and the AGI climbs to $126k, crossing the first IRMAA threshold, which in 2026 sits at $106,000 for a single filer. This triggers a Medicare Part B and Part D surcharge on top of the additional income tax.
Now this is by no means devastating for the retiree, but it’s also maybe not the most desirable outcome either.
What If You Don’t Need That $37,000 (Or Some of It, Anyway)?
If you find yourself in a position where you don’t need these funds, congrats — you’ve likely oversaved. Which means you have options.
There’s not a one-size-fits-all answer here, and the even better part is that the solutions can be mixed and matched. Before we cover the 3 options, there is one important thing you cannot do: you cannot convert your RMD to a Roth IRA. The IRS requires that the RMD be satisfied first before any remaining traditional IRA dollars can be converted. You can still convert other traditional dollars despite having an RMD, but the RMD itself may not be converted to Roth.
Otherwise, there are 3 things you can do with these funds.
Option 1: Take It & Gift It
If you have to take your RMD but don’t need it, gifting it to someone who does can be a meaningful use of those dollars.
This does mean taking the RMD as income — adding to your Adjusted Gross Income and resulting in some tax owed. But the money can go directly to someone who needs it.
A great example is a prospect I recently met who had more than he needed. His RMD was scheduled to be $40,000. You know who did need it? His daughter, who has been having a helluva time finding a home in this market. Yes, he’d owe some tax on the RMD, but it’s no secret the housing market has been brutal for first-time buyers.
Between him and his wife, they can each give up to $19,000 per recipient — to both his daughter and her husband — with no gift tax consequences or reporting required. That’s up to $76,000 that can pass gift-tax free in a single year when two parents give to a child and their spouse.
And if you live in a state that has an inheritance tax for direct descendants — such as Pennsylvania, with its 4.5% Pennsylvania inheritance tax — gifting now sidesteps that tax entirely for those dollars.
After all, it’s better to give with warm hands than cold ones.
Option 2: Re-Invest It
While you can’t convert your RMD to a Roth, you can move those funds into an after-tax brokerage account and keep them working for you.
Think of it this way: imagine a retiree who has a $500,000 IRA and a modest $50,000 in a brokerage account. She doesn’t need her $22,000 RMD this year — her pension and Social Security cover her expenses comfortably. Rather than letting that money sit in cash, she reinvests it into her brokerage account in the same diversified funds she already owns. Her nest egg stays essentially intact, just in a different wrapper.
This approach works well for someone who wants their money to keep growing and doesn’t need to spend the distribution. There are two things to keep in mind, though. First, you’ll owe tax on the RMD in the year it’s taken, whether you withhold it directly from the distribution or pay it at tax time. Second, once the funds are in a brokerage account, any capital gains and dividends generated there will need to be reported annually — unlike inside an IRA, where that activity is sheltered. It’s a bit more administrative work, but for someone who wants to stay invested, it’s a reasonable tradeoff.
Option 3: Give It Directly to Charity
This option works especially well for charitably inclined retirees — and the best part is you can start using it at age 70½, even before RMDs kick in.
It’s called a Qualified Charitable Distribution, or QCD. The idea is straightforward: instead of taking your RMD as income and then writing a check to your favorite charity, the money goes directly from your IRA to the charity. You never touch it, and it never shows up as taxable income.
In 2026, you can send up to $105,000 this way (that limit is indexed for inflation). If you’re already giving to charity with after-tax dollars, this is simply a smarter way to do the same thing — you’re giving with pre-tax dollars instead, which keeps your AGI lower and can help you stay below IRMAA thresholds or in a lower tax bracket.
This move does have rules worth knowing, so be sure to check out this article for the full details.
The Best Part
You don’t have to pick just one of these. You can split your RMD across all three — gift some, reinvest some, and send some to charity. The right mix depends on your situation, which is exactly why it’s worth planning ahead rather than just letting the distribution happen by default.
A rising RMD can become a problem if ignored. But with a little planning, you can turn the government’s forced withdrawal into something that actually works for you — and the people you care most about.