What is Required Minimum Distribution (RMD)?
At some point, you have to make withdrawls from your retirement accounts. Throughout your working years, your plan account has given you the opportunity for a tax deferred growth.
Federal law requires that by April 1st, in the year you reach age 701/2, you must begin distribution from retirement accounts. The required minimum distribution amount is calculated by using your account balance and life expectancy. Because your balance and your life expecatancy change each year, your RMD payment is recalculated each year too. If you don’t take the distribution or you don’t take enough to meet the minimum, the IRS can assess a penalty, in addition to the federal income taxes you should have paid.