Required Minimum Distribution (RMD)

A required minimum distribution (RMD) is the minimum amount that must be withdrawn each year from certain retirement accounts—including traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer-sponsored retirement plans like 401(k)s—once the account owner reaches age 73. RMDs are mandated by federal tax law to ensure that tax-deferred retirement savings eventually get taxed, and failing to withdraw the correct RMD annually results in steep IRS penalties. The amount is calculated each year by dividing the prior year-end account balance by a life expectancy factor published in IRS tables. RMDs do not apply to Roth IRAs while the owner is alive, but do apply to their beneficiaries after death. The rules differ slightly for workplace retirement plans, and exceptions exist for certain beneficiaries when the account owner dies.