What Is a Required Minimum Distribution (RMD)?
A required minimum distribution (RMD) is the amount of money that must be withdrawn from an employer-sponsored retirement plan, traditional IRA, SEP, or SIMPLE individual retirement account (IRA) by owners and qualified retirement plan participants of retirement age.

In 2020, the age for withdrawing from retirement accounts changed. You must begin withdrawing from a retirement account by April 1 following the year account holders reach age 72 (prior to 2020, the RMD age had been 70½ years old). The retiree must then withdraw the RMD amount each subsequent year based on the current RMD calculation.

KEY TAKEAWAYS

• The required minimum distribution is the amount you must take out of your account to avoid tax consequences.
• Retirees can and do take more than the RMD.
• If you have multiple accounts, you will usually need to calculate the RMD for each separately and may have to take an RMD from each.
• The SECURE Act of 2019 changed the distribution rules for some inherited IRAs, effectively eliminating the "stretch IRA"—an estate planning strategy that extended the tax-deferral benefits of IRAs.
• The RMD rules do not apply to Roth IRAs while the owner is still alive. However, the RMD rules do apply to Roth 401(k) accounts.

Understanding Required Minimum Distribution (RMD)
A required minimum distribution (RMD) acts as a safeguard against people using a retirement account to avoid paying taxes. Required minimum distributions are determined by dividing the retirement account’s prior year-end fair market value (FMV) by the applicable distribution period or life expectancy. The Internal Revenue Service (IRS) has a worksheet to help taxpayers calculate the amount they must withdraw. Generally, your account custodian or plan administrator will calculate these amounts and report them to the IRS.

Some qualified plans allow certain participants to defer the start of their RMDs until they actually retire, even if they are older than age 72. Qualified plan participants should check with their employers to determine whether they are eligible for this deferral.

It should be noted that while an account holder must withdraw the required minimum distribution amount, they can also withdraw above that amount. If the account holder wants to withdraw 100% of the account in the first year, that’s perfectly legal, but the tax bill could be a shocker.

The RMD rules do not apply to Roth IRAs while the owner is still alive. However, the RMD rules do apply to Roth 401(k) accounts.

It should be noted that while an account holder must withdraw the required minimum distribution amount, they can also withdraw above that amount. If the account holder wants to withdraw 100% of the account in the first year, that’s perfectly legal, but the tax bill could be a shocker.

Please know that we do not offer any form of tax or legal advice. You should seek out a qualified advisor for these types of questions. This information above is for educational purposes only.