Are You Reinvesting Your RMD in 2026? Here Are Your Best Options

Many Americans reduce their tax obligations during their working years by contributing to tax-deferred retirement accounts. However, the federal government eventually collects taxes by making retirees take required minimum distributions (RMDs).

Although the IRS forces retirees to withdraw from their traditional IRAs and 401(k) plans, it doesn't tell you what to do with the money. If you're reinvesting RMD money in 2026, here are four of the best options.

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1. In-kind distribution to a taxable brokerage account

If you like the stocks, bonds, and/or ETFs your money is invested in, you don't have to sell them. An in-kind distribution allows you to move the shares from your tax-advantaged IRA or 401(k) plan to a taxable brokerage account.

This option isn't the best if you need the money. Note that you'll also need another source of funds to pay the RMD tax. However, if you think your holdings have more upside and want to stay invested, an in-kind distribution is a smart alternative.

2. Dividend stocks or ETFs

Another approach is to receive your RMD in cash and reinvest it in new assets within a taxable brokerage account. Dividend stocks or ETFs offer a great way to boost your retirement income, if you're comfortable with some market volatility.

Dividend Kings (stocks with at least 50 consecutive years of dividend increases) are popular with many retired investors. If you're interest in a dividend-focused ETF, you may want to check out the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD).

3. Municipal bonds or ETFs

Municipal bonds are especially attractive to retirees who want to lower the taxes they owe on their income. The interest from municipal bonds is typically exempt from federal taxes. These bonds offer lower volatility than stocks.

If you don't want to choose individual municipal bonds, consider an ETF that holds a large number of municipal bonds. The Vanguard Tax-Exempt Bond Fund (NYSEMKT: VTEB) is one good example. This ETF's portfolio includes over 9,900 bonds issued by state and local governments.

4. High-yield savings or CDs

For retirees seeking maximum safety and peace of mind, high-yield savings accounts or short-term certificates of deposit (CDs) could be a good option. The Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 per depositor per FDIC-insured bank. Even if you're not overly risk-averse, you may still want to consider putting some of your RMD money in a high-yield savings account or CD if you have short-term spending needs.

The best choice?

Which of these four options for reinvesting RMDs is the best? It depends on your goals and risk tolerance. The good news is that you don't have to choose just one. For example, splitting your RMD across a dividend ETF, municipal bonds, and a CD is a perfectly valid strategy. The key is to be intentional -- because an RMD doesn't have to be the end of your money's growth story.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.