You must take required minimum distributions (RMD) when you turn 73, but you can wait until 75 if you turn 74 in 2033 or later. This distribution only applies to traditional retirement accounts, but not everyone wants cash to sit idle. You can invest your RMD, as long as you know a few rules before you start.
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Any RMDs you take out of a regular retirement account cannot roll back into a tax-deferred account. Traditional IRAs and traditional 401(k) plans are out of the picture for your RMDs. You can still contribute to these programs if you have enough income and your contribution does not exceed the maximum amount.
However, you can still invest the RMD in a Roth IRA or Roth 401(k) plan, up to the limit. You will need to first withdraw the RMD and then deposit those funds into the Roth account. Retirees cannot automatically transfer an RMD to a Roth account.
There are no limits on how much you can invest in a taxable brokerage account each year. These are the best places for RMDs, as they give you access to the same assets you can buy through a regular retirement plan.
You can decide to receive the RMD as cash or withdraw sufficient assets from your retirement plans into your taxable brokerage accounts.
You will still pay income taxes on any assets you move from a retirement plan to a brokerage account. The stocks and funds you transfer will have a new cost basis that reflects the fair market value on the date of the transfer.
When you take an RMD, you don’t have to hold stocks and mutual funds. Investments that made sense 20 years ago may not reflect your current risk tolerance. For example, new investors tend to gravitate toward growth stocks, while older investors tend to benefit from blue chip dividend stocks that offer stability.
You should check your nest egg, Social Security, and other resources before deciding how to reinvest an RMD. You also need enough money to pay taxes. The risk with investing your entire RMD in the stock market is that you may have to sell dividends during the adjustment period to pay taxes.
Any money you leave behind for taxes can go into a high-yield savings account or CD. That way, you can generate some extra income from your taxable income.
