RMD (Required Minimum Distributions)

What is RMD (Required Minimum Distributions)?

RMDs are mandatory, IRS-defined withdrawals that must be taken annually from certain retirement accounts once the account holder reaches a specified age—currently 73 for most people.

These rules apply to traditional IRAs, 401(k)s, and other tax-deferred retirement accounts. Since these accounts grow tax-free, RMDs ensure that the IRS eventually collects taxes on the funds. The required amount is calculated based on the account balance and the individual’s life expectancy.

Missing an RMD deadline can result in steep penalties—up to 25% of the shortfall—but this can sometimes be reduced if corrected in a timely manner. Strategically planning for RMDs is key to avoiding unnecessary taxes, managing cash flow effectively, and maintaining control over investment distributions in retirement.

Roth IRAs, which are funded with after-tax dollars, are exempt from required minimum distributions (RMDs) during the original owner's lifetime, making them a powerful estate planning tool.

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