Retirees face a tax deadline every year, but they can also use that moment to reposition their wealth.
Many American workers reduce their tax obligations by contributing to tax-deferred retirement accounts. The federal government eventually collects taxes by requiring retirees to take required minimum distributions (RMDs) from traditional IRAs and 401(k) plans. Retirees can reinvest RMD money in 2026 using the following four options:
1. In-kind distribution to a taxable brokerage account
Retirees can transfer shares from a tax-advantaged account to a taxable brokerage account without selling them. This option is suitable for those who prefer to retain their holdings and have other funds to pay RMD taxes.
2. Dividend stocks or ETFs
Retirees can receive RMD in cash and invest in dividend stocks or ETFs, such as the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD), to increase retirement income. Dividend Kings are stocks with at least 50 consecutive years of dividend increases.
3. Municipal bonds or ETFs
Municipal bonds provide interest exempt from federal taxes and offer lower volatility than stocks. An example ETF is the Vanguard Tax-Exempt Bond Fund (NYSEMKT: VTEB), which holds over 9,900 bonds from state and local governments.
4. High-yield savings or CDs
High-yield savings accounts or short-term CDs, insured by the FDIC up to $250,000 per depositor per bank, offer safety for short-term spending needs.