A Required Minimum Distribution (RMD) is the minimum amount you must withdraw annually from tax-deferred retirement accounts (Traditional IRA, 401(k), 403(b), etc.) starting at age 73. The amount is calculated by dividing your account balance by an IRS life expectancy factor. Failure to take RMDs results in a 25% excise tax on the amount not withdrawn. Roth IRAs are exempt from RMDs during the owner's lifetime.
Required Minimum Distribution
Definition
A Required Minimum Distribution (RMD) is the minimum amount you must withdraw annually from tax-deferred retirement accounts (Traditional IRA, 401(k), 403(b), etc.) starting at age 73. The amount is calculated by dividing your account balance by an IRS life expectancy factor. Failure to take RMDs results in a 25% excise tax on the amount not withdrawn. Roth IRAs are exempt from RMDs during the owner's lifetime.
Example
A 75-year-old with a $500,000 Traditional IRA balance and an IRS life expectancy factor of 24.6 would have an RMD of approximately $20,325 for that year.
Key Points
- 1Required starting at age 73 for tax-deferred accounts
- 2Calculated using account balance and IRS life expectancy tables
- 325% penalty for missed RMDs
- 4Roth IRAs exempt during owner's lifetime
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