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A Required Minimum Distribution (RMD) is the smallest amount you must withdraw from your retirement accounts each year once you reach a certain age.
In Depth
The IRS mandates that individuals start taking money out of most tax-deferred retirement accounts, like traditional IRAs and 401(k)s, once they reach a specific age, currently 73. This annual withdrawal is called a Required Minimum Distribution (RMD). The RMD amount is calculated based on your account balance and life expectancy. Failing to take your RMD can result in significant tax penalties.
Example
After turning 73, Sarah had to start taking her Required Minimum Distribution from her traditional IRA each year to avoid penalties.