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"A Goal Without a Plan Is Just a Wish"
-Antoine de Saint-Exupery


RMDs: Requirement Not Choice

RMDs or Required Minimum Distributions are the amounts that the federal government requires individuals to withdraw from their retirement accounts annually after they reach the age of 70½. You can take out more than the minimum from your retirement account, but if you take out less, you will be subject to a federal penalty. This is to ensure that the retirement accounts aren't used to simply defer taxes on accumulated assets and then leave them as an inheritance. The RMDs are intended to spread out the distribution of your IRA or plan assets over your lifetime.

Your first required distribution must be taken either during the year you turn 70½ or by April 1 of the following year. Subsequent distributions must be taken by December 31 of each year until your death or your balance reaches zero. If you wait until April 1 of the following year to begin, you will have to take two distributions that year. The amount of the distribution each year is based on the account balance as of December 31 of the prior year and a life expectancy factor as specified in the IRS Uniform Lifetime Table.

If you fail to take the minimum distribution in any year or take it too late, the federal penalty is a 50% excise tax on the amount by which the RMD exceeds the actual distributions made that year. There are other considerations to take into account so speak to a financial advisor if you're unsure about your particular situation.

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