Robert, Past 70.5, Asks Clark Howard What to Do With RMDs From Three Retirement Accounts

The post Robert, Past 70.5, Asks Clark Howard What to Do With RMDs From Three Retirement Accounts appeared first on 24/7 Wall St..

A caller named Robert phoned into The Clark Howard Show with a problem most savers would love to have: the IRS was forcing him to pull money out of retirement accounts, and he didn’t need a dime of it to cover his bills. Clark’s answer was short, blunt, and mostly right, with one giant blind spot that costs retirees thousands every year.

I’ve been covering retirement-income planning for more than 15 years, and the RMD reinvestment question is one of the most common — and most botched — calls I hear on personal finance shows. Here is the exchange from the February 7, 2018 broadcast. After Robert explained he was past 70.5, splitting his required minimum distribution across all three accounts, and holding roughly $500,000, Clark told him:

“If you don’t want to give it away to family or charity or you don’t want to do something fun for yourself and you don’t need the money. This is going to sound weird. I would put it into an investment account and I would buy like a total stock market index fund or something like that with it. There would be ultimately a great inheritance asset for somebody to get way down the road.”

The Verdict: Reinvest, But Pick Your Wrapper Carefully

Clark’s instinct is correct. An RMD you don’t need should go back to work instead of losing ground to inflation in a checking account. The mechanic Robert and every retiree in his shoes needs to understand is the difference between a tax-deferred account and a taxable brokerage account, because the RMD is the bridge between them.

When you pull money from a traditional IRA or 401(k), every dollar lands on your tax return as ordinary income. For a 2026 married couple filing jointly, that income stacks on top of Social Security and pension dollars and hits the brackets at 22%. The tax bill is owed whether you spend the cash on groceries or let it sit in a savings account earning 4%.

Once you’ve paid that ordinary income tax, redepositing into a regular taxable brokerage account is the move. Inside that account, a broad index fund throws off mostly qualified dividends and long-term capital gains, both taxed at preferential rates. The goal is to move money from a tax-deferred wrapper to a tax-efficient one. That is the second wrapper Robert needs.

Running the Numbers on a $20,000 RMD

Say Robert’s combined RMD is $20,000 and his marginal bracket is 22%. He owes about $4,400 in federal tax no matter what. The $15,600 left over, dropped into a total market index fund, can compound for years and pass to heirs with a stepped-up cost basis at death. The unrealized gains the fund accumulates during his lifetime are wiped clean for the next generation.

Compare that to leaving the $15,600 in a high-yield savings account. The interest is taxed as ordinary income every year, and the principal never grows beyond the rate the bank pays. Over a decade, the gap between the two strategies on a single year’s RMD can easily run into five figures.

The Variable That Changes Everything: Are You Charitable?

Here is where Clark undersold the play. If Robert gives to a church, alma mater, or any 501(c)(3), he can use a Qualified Charitable Distribution to send up to $108,000 (the 2025 limit, indexed annually) straight from his IRA to the charity. The dollars satisfy his RMD and never appear on his tax return at all.

That is materially better than taking the RMD, paying the 22% tax, and then writing a check. With the 2026 standard deduction at $29,200, most retirees no longer itemize, which means a normal charitable donation gets no tax benefit. A QCD bypasses the standard-deduction trap entirely.

Clark did mention the family-gifting route, and that lever still works. The 2026 annual gift exclusion is $19,000, meaning Robert and his spouse can hand $38,000 to each adult child or grandchild every year with zero gift tax paperwork. The catch: he still pays the income tax on the RMD before he gives. The QCD does not have that drag.

What Robert (and You) Should Actually Do

1. Confirm your RMD age. The 70.5 threshold from Robert’s 2018 call is gone. Under SECURE 2.0, the trigger is now age 73, moving to 75 in 2033. If you turned 73 this year, your first RMD is due by April 1 of next year.
2. Pull from the bond side of the portfolio. Clark told Robert to take the distribution from the lower-volatility portion of his accounts so the equity compounding stays intact. Same logic applies to you.
3. If you’re charitable, run a QCD first. Call your IRA custodian and ask them to cut the check directly to the charity. Get it done before December to count for the current tax year.
4. Reinvest the rest in a taxable brokerage account. A total stock market index fund or a tax-managed equivalent keeps annual tax drag near zero and gives heirs a stepped-up basis.
5. Consider monthly auto-RMDs at your custodian. Schwab, Fidelity, and Vanguard will calculate and distribute the right amount each month, which spreads market-timing risk across the year.

Clark’s core answer to Robert holds up: do not let forced withdrawals turn into idle cash. The refinement is that the smartest first dollar of an unwanted RMD goes to charity through a QCD, the next dollars go into a low-cost index fund inside a taxable brokerage, and the inheritance Clark described takes care of itself.

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