If you’ve spent your working years contributing to a pre-tax retirement plan, you didn’t pay federal or state income tax on that money when it was earned and contributed. Now in 2026, individuals born in 1953 are turning 73 and must begin taking required minimum distributions (RMDs). How much you need to withdraw is based on a specific IRS formula, and income taxes will be due on the funds withdrawn in that tax year. Missing an RMD used to trigger a draconian 50% excise tax penalty, but under SECURE 2.0 legislation, this penalty is permanently reduced to 25%, and it drops further to 10% if corrected in a timely manner.
The question is this: If you reinvest the money in another potential growth vehicle – like real estate or stocks – will you have to pay taxes on it twice?
In short, the answer is no. Reinvesting the money does not automatically result in double taxation. However, there’s more to the story, and if you’re fortunate, you will have to pay taxes on any income generated from the new investments.
Reinvesting and the “In-Kind” Strategy
Let’s say your RMD for the year is $50,000, and you reinvest it all in stocks. To determine the exact amount you are required to take, you must use the IRS Uniform Lifetime Table (Table III). For instance, a 73-year-old with a $500,000 account balance on December 31 of the prior year divides that balance by the IRS distribution period factor of 26.5, resulting in an exact required distribution of $18,867.92. After 10 years of reinvestment, if the stocks you purchased grow at an average annual rate of 7%, a $50,000 principal would be worth $98,358.
Because you’ve already paid taxes on the original $50,000 you used to purchase the stocks, you’ll never have to pay taxes on that amount again. However, the $48,358 earned in interest or capital gains is taxable.
Income generated from new investments is always taxed. If you want to keep your money growing without sitting out of the market, you do not have to liquidate your assets into cash first. You can execute an in-kind RMD transfer, which moves equities directly from a Traditional IRA into a taxable brokerage account. The fair market value of the shares on the day of the transfer counts toward satisfying your RMD requirement; you will owe income taxes on that value, but you avoid transaction costs and retain your market positions.
Tip: Once you consider reinvesting RMD withdrawals, it’s recommended that you consult your financial advisor. They can give you the lowdown and help you determine the most tax-efficient way to reinvest.
Not your only option
You have other options if you want to give your RMDs more time to grow, maximize tax efficiency, or lower your future distribution burden:
Look at real estate: You can invest in real estate by purchasing property or investing in a Real Estate Investment Trust (REIT). A REIT is a company that allows you to invest in real estate without having to buy or manage properties yourself. It can help you gain income from real estate and diversify your portfolio without all the work involved in being a landlord.
Get rid of debt: Again, let’s imagine that your RMD for the year is $50,000. However, you’re carrying debt. You have $10,000 on credit card balances, owe another $8,000 on a personal loan, and have a remaining balance on your car loan of $32,000. You’re paying high APRs on these balances. Getting rid of those debts is like paying yourself the interest now going to your creditors. It’s a solid way to ensure there’s more money left at the end of each month.
The Pre-RMD Roth Conversion Window: While you cannot roll over or convert a mandatory RMD into a Roth IRA once it is due, you can utilize the “gap years” before your RMD age begins to perform partial Roth conversions. Converting traditional pre-tax funds to a Roth IRA early shrinks your total traditional balance, systematically reducing the scale of your mandatory RMD obligations later in life.
Make a Qualified Charitable Distribution (QCD): If you’re looking to do something good while also saving money on taxes, a QCD may be just what you’re looking for. A QCD allows individuals age 70½ or older to transfer funds directly from a Traditional IRA to an eligible charitable organization without counting it as taxable income. Thanks to inflation-indexing rules under SECURE 2.0, the maximum annual individual QCD limit has risen to $111,000 for 2026.
Tip: The key here is that donations must be made directly from your IRA to the charity. In other words, the RMD should never come to you. If you delay your very first RMD until April 1 of the calendar year after you turn 73, you will face a “Double RMD Tax Trap” because you must take your second RMD by December 31 of that same year. This double distribution can push you into a higher tax bracket and trigger costly IRMAA surcharges on your Medicare premiums.
Why this subject matters
If you reach retirement with a nice nest egg put away, you’ve done a good job. However, it’s important to weigh where the money is most needed, while also thinking about potentially saving money on taxes. While you may not love being told that it’s time to withdraw money from your retirement account, it’s a lovely problem to have. The good news is, there’s no single way to use your RMDs. You get to determine where the funds will do the most good and how to make the most of your hard-earned money.
Editor’s Note: This article has been updated to reflect the 2026 required minimum distribution guidelines, including the specific age milestones for individuals born in 1953 and the reduced IRS penalty structure introduced by SECURE 2.0. The revision introduces an analysis of in-kind equity transfers to taxable brokerage accounts, math mechanics utilizing the IRS Uniform Lifetime Table, pre-RMD Roth conversion windows, and the risk parameters surrounding concurrent distributions and Medicare IRMAA surcharges. Additionally, the maximum qualified charitable distribution threshold has been updated to the inflation-indexed limit of $111,000.
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