Personal Finance Essentials

Required Minimum Distributions

The IRS Can Claim 90% of What You Were Supposed to Withdraw

Do You Know Your RMD Rules?

IRS

Tax law requires that once you reach a certain age, you must begin withdrawing money from your traditional retirement accounts. These withdrawals are called Required Minimum Distributions, or RMDs. The IRS determines the minimum amount you must withdraw each year based on your age and account balance.

The rules are complicated, and the penalties for violating them are severe.

Withdraw too little – or nothing at all – and the IRS can claim 90% of the amount you were supposed to withdraw. You must follow these rules precisely.

The goal is to withdraw enough to meet your needs without depleting your accounts prematurely. A practical approach: reverse-engineer the process. Start with the total income you need each year. Subtract Social Security, pension income and any other sources. Withdraw only the remainder from your retirement accounts. This preserves your savings for as long as possible.

Roth IRAs are an exception – they have no required minimum distributions during the owner’s lifetime, which is one reason they are valuable for both income planning and estate planning.