Required Minimum Distribution (RMD) refers to the minimum amount that a retirement plan account owner must withdraw annually from their retirement accounts, such as a traditional IRA or 401(k), once they reach a certain age.
The age at which RMDs must begin is typically 72 years old, although this age may vary based on specific circumstances or legislation changes. The calculation of the RMD is based on the account balance at the end of the previous year and a life expectancy factor from the IRS’s Uniform Lifetime Table.
For example, if an individual has an IRA balance of $100,000 at the end of the previous year and is 72 years old, they would divide that balance by the life expectancy factor (e.g., 25.6) to determine their RMD for the current year, which would be approximately $3,906.25. Failure to take RMDs can result in significant tax penalties, typically 50% of the amount that should have been withdrawn.
« Back to Glossary Index