Ask an Advisor: Can I Use My $10,000 RMD to Buy an Annuity and Skip the Tax Bill? (2025)

Brandon Renfro, CFP®, RICP, EA

Fri, Apr 18, 2025, 8:30 AM 6 min read

SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.

Here is my question, which uses hypothetical values for simplicity: My RMD for 2024 is $10,000. Can I avoid paying the IRS the tax on that $10,000 this year by investing the full $10,000 RMD or the value of the tax on the $10,000 into a qualified longevity annuity contract (QLAC). I just retired in 2024 so my tax load on my earned wages is already large enough which is why I would like to invest the full value of the RMD into a QLAC.

– Paul

Thanks for your question, Paul. Unfortunately you cannot. Although a qualified longevity annuity contract (QLAC) can indeed help you reduce the size of your RMDs, you wouldn't be able to use it exactly the way you've described. On the other hand, a qualified charitable distribution (QCD) would allow you to avoid the tax on your current RMD. Whether that’s a good strategy for you depends on if you normally give to charity, as well as your intended use of the money.

A financial advisor can help you plan for RMDs and manage your streams of income in retirement. Connect with a fiduciary advisor today.

The issue lies not with QLACs but with the rules governing RMDs – the annual withdrawals that must be made from tax-deferred accounts like traditional IRAs and 401(k)s starting at age 73 (75 for people born in 1960 or later). As a result, it helps to review how RMDs are calculated.

Your annual RMD is determined by dividing your account balance by the distribution period that corresponds with your age, as outlined in the appropriate IRS table.

The account balance used in this calculation is the value as of December 31 of the previous year. For example, your 2024 RMD is based on your account's closing balance on Dec. 31, 2023, while your 2025 RMD will be based on your account’s closing balance on Dec. 31, 2024.

While these distributions are required every year, you can delay your first RMD until April 1 of the year after you reach RMD age. For example, if you turned 73 in 2024, you would have until April 1, 2025, to take your first distribution. However, delaying your first RMD until April means you’re still required to take your second RMD by the end of that same year.

It's also important to note that you cannot “reinvest” your RMD into another IRA or convert it to a Roth IRA. The funds must be withdrawn, and you may owe taxes on the distribution. (And if you need additional help calculating and managing your RMD, consider speaking with a financial advisor.)