What is a Required Minimum Distribution (RMD) and when does it typically begin?

• A. The minimum amount you must withdraw from traditional IRAs/401(k)s starting at age 72 (as of current law)
• B. The maximum you may contribute annually
• C. The minimum to avoid penalties
• D. When you first open an account

Answer: (A)

RMDs are the minimum amounts you must withdraw each year from tax-deferred retirement accounts so that the government taxes the funds eventually. Under current law, you begin taking these minimum distributions from traditional IRAs and 401(k)s starting at age 72. Each year, the amount is calculated using IRS life expectancy tables and your year-end account balance from the previous year; a common way to think of it is balance divided by a distribution period that corresponds to your age. The money withdrawn is treated as ordinary income for tax purposes. The distribution must be taken by year-end, and if you don’t withdraw the full required amount, you can face a hefty penalty. Roth accounts are treated differently: Roth IRAs aren’t subject to RMDs during the owner’s lifetime, while other Roth-qualified plans may have their own rules.