A Required Minimum Distribution (RMD) is a mandatory withdrawal that must be taken from traditional retirement accounts, such as IRAs, 401(k)s, 403(b)s, and other similar plans. Previously, RMDs had to start at age 70.5, but recent changes have increased the age to 73, with the possibility of future adjustments. 

The RMD amount isn’t a fixed percentage but rather depends on life expectancy, calculated to ensure that funds would last until age 120.

It’s crucial to take the RMD on time because failing to do so can result in severe penalties—up to 50% of the amount you were supposed to withdraw. 

If you turn 73 during the year, you technically have until April of the following year to withdraw, but delaying could mean taking two distributions in one year, which could have tax implications.

RMDs are taxable based on your current income bracket, they are added into your taxable income.

There’s an exception if you direct the distribution to a qualified charity, known as a Qualified Charitable Distribution (QCD). This method not only satisfies the RMD requirement but also allows you to avoid the tax on the withdrawn amount. You can learn more about that on this vlog post, or feel free to connect with us with all your IRA and RMD questions!