Required Minimum Distribution (RMD)
The minimum amount the IRS requires holders of traditional IRAs, 401(k)s, and most other retirement accounts to withdraw annually starting at age 73 (as of 2023).
Understanding Required Minimum Distribution (RMD)
RMDs are calculated by dividing the prior year-end account balance by a life expectancy factor from IRS tables. Failure to take an RMD results in a 25% excise tax on the amount that should have been withdrawn. Roth IRAs are not subject to RMDs during the owner's lifetime. IUL policies have no RMDs. RMDs can push retirees into higher tax brackets and increase Medicare premiums.
Why This Matters for Retirement: Understanding Required Minimum Distribution (RMD) is essential for making informed decisions about tax-free retirement income strategies. Whether you are evaluating an IUL policy, planning Roth conversions, or comparing retirement vehicles, this concept directly affects your outcomes.