What is RMD?

RMD stands for Required Minimum Distribution, which is the mandatory, minimum amount of money the IRS requires individuals to withdraw annually from tax-deferred retirement accounts—such as traditional IRAs, 401(k)s, and 403(b)s—starting at age 73.

Key Aspects of RMDs

• Purpose: To ensure that tax-deferred retirement savings are eventually taxed rather than left to accumulate indefinitely.
• Age Requirement: Generally, you must start taking RMDs by April 1st of the year after you turn 73.
• Penalty: Failing to withdraw the full RMD amount by the annual deadline (Dec 31) can result in a 25% penalty tax on the amount not taken, which may be reduced to 10% if corrected in a timely manner.
• Taxation: RMDs are taxed as ordinary income.
• Applicable Accounts: Traditional IRA, SEP IRA, SIMPLE IRA, 401(k), 403(b), and 457(b) plans.
• Exceptions: Roth IRAs do not require RMDs during the owner’s lifetime. TIAA +4

Usage Examples & Scenarios

• Turning 73: If you turn 73 in 2026, you must take your first RMD by April 1, 2027, and subsequent RMDs by December 31 of each year.
• Active Employees: If you are still working at 73 and do not own 5% or more of the company, you may be able to delay RMDs from your current employer’s plan.
• Calculation: The amount is calculated annually based on your prior year-end account balance and an IRS life expectancy table. 

Synonyms/Related Terms

• Tax-Deferred Account Withdrawal
• Required Minimum Distribution
• Mandatory Retirement Withdrawal
• IRA Distribution
• Required Payout
• Required Distribution