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The Required Minimum Distribution (RMD) is the minimum amount you must withdraw from your traditional IRA or employer-sponsored retirement accounts each year, starting at a certain age. It’s essentially a way to prevent retirement savings from growing indefinitely tax-deferred, ensuring the government collects its share of the money eventually.

Here’s why RMDs are important:

• Avoiding penalties: Failing to take your RMDs by the deadline results in a hefty penalty of 50% of the undistributed amount. That’s a significant chunk of your retirement savings potentially going to the IRS instead of you.
• Planning for income: Knowing your RMD amount helps you plan your budget in retirement. You can factor it in when estimating your income and making spending decisions.
• Managing taxes: Taking RMDs allows you to spread out the tax burden on your retirement savings over multiple years, potentially reducing your overall tax liability.

Here are some key things to remember about RMDs:

• The RMD age is currently 73, having recently increased from 72 due to the SECURE Act 2.0.
• The first RMD can be delayed until April 1 of the following year, but all subsequent RMDs must be taken by Dec. 31.
• The RMD amount is calculated based on a formula that considers your account balance and your life expectancy. Several online calculators can help you estimate your RMD.

It’s crucial to consult with an accountant or financial advisor if you have any questions or concerns about RMDs. They can help you understand your specific situation, ensure you’re taking the right steps to comply with IRS regulations, and help to maximize your retirement income.

Schwab has a calculator that can determine how much you need to withdraw for your RMD, based on your date of birth, account balance, and other information. Remember, 50% is a huge penalty, so make sure you withdraw it correctly.

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