Should I Keep RMD in a HYSA?
TL;DR
Yes for current-year living expenses; that's exactly what cash is for. But parking the full RMD long-term in a HYSA means losing real value to inflation while paying tax annually on the interest. The smarter play is taking a MYGA inside the IRA before RMD age (73) to lock the rate before forced distribution starts, then drawing only what you need each year. RMD must come out annually; the real question is how you redeploy what you don't spend.
Savings account vs MYGA, after tax
What $100,000 earns in 5 years: savings account vs MYGA, after tax
Rates used: Savings account 4.00%, the top online savings rate we tracked (bank sites, September 24, 2026); savings rates can change any day; change it to the rate you are offered. MYGA 5.95%, the best A-rated rate we track as of October 13, 2026: Delaware Life Pinnacle Plus 5-year (AM Best A-, negative outlook, 7/31/2026), $100,000 and up, effective October 6, 2026 (Delaware Life rate sheet).
| Savings account, interest taxed every year | $116,604 |
|---|---|
| MYGA, tax-deferred, before tax | $133,507 |
| MYGA after paying tax on all the interest at withdrawal | $126,136 |
| Tax deferral alone adds about | $674 |
| MYGA ahead of the savings account, after tax | $9,531 |
Assumes 22% federal and 0% state income tax, no withdrawals, rates held for the whole term. MYGA interest is taxed as ordinary income when you withdraw it, not as capital gains. Gains taken before age 59 1/2 can owe a 10% IRS penalty, and cashing out early can cost a surrender charge. In an IRA both grow tax-deferred, so the edge there is the rate alone. Bank and credit union deposits are FDIC or NCUA insured up to the limits; a MYGA is backed by the issuing insurer's claims-paying ability and your state's guaranty association up to its limits, not the FDIC. General education, not tax, legal or financial advice.
Quick answer
Yes for the portion you will spend in the current year. A HYSA is exactly the right tool for cash flow you need within 12 months: instant liquidity, FDIC insurance, decent yield. Take the RMD, deposit it to your HYSA, draw monthly for living expenses, done.
No for the portion you do not need to spend. If your RMD is $40,000 and your actual spending need from the IRA is $25,000, the extra $15,000 should not sit in a HYSA earning 4.0-4.3% taxable. After tax and inflation, the real return on excess HYSA cash is essentially zero. Reinvest the excess in a non-qualified MYGA, a brokerage account with stocks and bonds, or even back into a Roth IRA via conversion in a low-bracket year.
The RMD basics that matter here
RMDs (required minimum distributions) start at age 73 for traditional IRAs and 401(k)s. The IRS publishes a Uniform Lifetime Table that sets the divisor for your age. RMD = prior-year-end account balance / table divisor. Example: age 73 divisor is 26.5, so a $500K IRA produces a $18,868 RMD that year.
The RMD must be distributed to a non-IRA account by December 31 (April 1 for the first RMD year only). Failure to distribute triggers a 25% excise tax on the missed amount (reduced to 10% if corrected within 2 years). Once distributed, the money is yours to spend, save or reinvest. The IRS does not care what you do with it.
The interesting question is not "do I take it" (you must) but "where does it land and what do I do with it."
Rates expire like milk.
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Worked example: $60K RMD, $40K spending need
Robert is 75. IRA balance $750K. RMD this year: ~$30,500 (75 divisor is 24.6). With Social Security, he needs $25,000 from the IRA for living expenses; the other $5,500 is surplus.
| Strategy | Year-1 outcome on $5,500 surplus | 3-yr outcome (rate held) |
|---|---|---|
| Sit in HYSA at 4.25% | $234 interest, $56 tax, $178 net | ~$715 net interest, real value declining by inflation |
| Move to non-qualified MYGA at 5.30% | $292 interest, $0 tax (deferred) | ~$893 net interest, real value modestly positive |
| Reinvest in brokerage (60/40 stocks/bonds) | Variable, ~$385 expected | ~$1,150 expected (with volatility) |
| Roth conversion (if bracket allows) | $0 net first year, but $5,500 grows tax-free forever after | Tax-free compounding indefinitely |
On $5,500/year of surplus, the absolute dollar differences are small. On 5-10 years of accumulated surpluses ($30K-$60K), the strategy gap becomes material.
The pre-RMD MYGA play
The smarter move starts before RMD age. If you are 65-72 and have an IRA you do not need for current spending, opening a non-qualified MYGA inside the IRA locks today's rate for 3-10 years. When RMDs start at 73, you simply take the required distribution from the MYGA each year (the carrier will set up the systematic RMD distribution for you).
Why this matters: a MYGA's rate (5.30% in this June 2026 example) is locked. If you wait until 73 and start taking RMDs from cash inside the IRA, you are committing to whatever HYSA-equivalent rate prevails in 8 years (probably lower, since long-term cash yields trend down). The MYGA pre-RMD lock-in protects you from that.
Mechanics: Most A-rated MYGAs accept IRA money via trustee-to-trustee transfer. The carrier sets up a 10% annual penalty-free withdrawal that covers the typical 4-5% RMD requirement. The contract continues to credit the locked rate on the remaining balance.
The inflation problem with long-term HYSA cash
4.25% APY sounds good. After 24% federal + 9.3% state tax, it is 2.85% after-tax. Net of 3% inflation, the real after-tax return is essentially zero. Holding $200K of post-RMD surplus in a HYSA for 10 years preserves the nominal $200K but produces about $14K of real (inflation-adjusted) growth. That is less than 1% per year real.
That is the cost of treating excess RMD cash as "savings." It is not savings; it is dead capital eroding to inflation.
When the answer changes
- You will spend it within 12 months. HYSA is correct. Do not over-engineer current-year cash flow.
- You are in a 0 or 12% bracket. Roth conversions become a powerful alternative to HYSA-parking the surplus. Convert at low brackets to lock in tax-free growth forever.
- You have an estate-planning beneficiary plan. Naming beneficiaries on a MYGA passes the contract outside probate to the named beneficiary; HYSA passes via POD or estate. MYGA estate mechanics are usually cleaner.
- You have a charitable giving plan. The Qualified Charitable Distribution (QCD) lets you donate up to $108,000 (2026 limit) directly from the IRA to a 501(c)(3), satisfying the RMD without it counting as income. This is dramatically better than donating from HYSA cash.
The QCD alternative
If you donate to charity anyway, the Qualified Charitable Distribution is almost always better than taking the RMD to HYSA and then writing a check. QCD lets you transfer up to $108,000/year directly from your traditional IRA to a qualified 501(c)(3). The transfer counts toward your RMD but is not taxable income. It also does not push you into higher IRMAA tiers for Medicare premiums.
Mechanics: contact your IRA custodian, request a check made payable directly to the charity, sent to your address. You deliver the check to the charity. The custodian reports it as a distribution but you exclude the QCD portion on Form 1040.
Common mistakes
- Treating the full RMD as untouchable cash reserves. Once distributed, it's yours to deploy. Only what you spend this year needs to be in cash.
- Forgetting the December 31 deadline. Missing the RMD triggers a 25% excise tax. Set a September reminder to confirm the distribution is in process.
- Taking the RMD in cash when QCD-eligible donations are part of your spending. QCD bypasses the income recognition entirely. Highly tax-efficient for charitable givers.
- Sitting on the full RMD because "I might need it." Cash held against vague future needs is the most expensive form of cash. Decide a 12-month spending number; everything above that goes to longer-duration instruments.
- Putting RMD surplus in a 5-year MYGA without considering brokerage equities. If your horizon is 5+ years and you can tolerate volatility, equities have historically outperformed MYGAs by 3-5% per year over rolling 10-year windows. MYGAs are right for medium duration; long-duration surplus often belongs in stocks.
What to do next
If you are over 73, calculate: this year's RMD, your actual 12-month spending need from the IRA, and the surplus. The surplus is what needs to be redeployed out of HYSA into a higher-real-return instrument (non-qualified MYGA, brokerage, Roth conversion, QCD).
If you are 65-72, the bigger opportunity is the pre-RMD MYGA play. Locking the 5.30% rate today and structuring the contract for systematic RMD distribution starting at 73 protects you from 8 years of potential rate decline. See CD vs MYGA ladder and HYSA vs MYGA for 3-year money.
Frequently asked follow-up questions
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Disclosure
This article reflects publicly available HYSA, CD, and annuity rate information approximate to the date above. High-yield savings rates are variable and change frequently, often weekly. Always confirm current rates directly with the institution before opening or transferring. This is general educational content, not a personalized recommendation, solicitation, or offer of any specific product. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated carriers in the fixed-annuity market; Goldstein & Co. LLC is not a bank, broker-dealer, or registered investment adviser. HYSAs and CDs are deposit products of FDIC-insured banks or NCUA-insured credit unions; MYGAs and other annuities are insurance contracts backed by the issuing carrier and state guaranty associations. FDIC and NCUA insurance limits are typically $250,000 per depositor per institution per ownership category. Tax discussion reflects federal law as of 2026 and is subject to change; consult a tax professional for your situation.