Required Minimum Distribution

What Does Required Minimum Distribution Mean?

A Required Minimum Distribution (RMD) is the minimum amount that must be withdrawn from certain retirement plans, as mandated by the Internal Revenue Service. This withdrawal typically begins by April 1st of the year following the year in which the individual reaches 70.5 years of age and retires.

Insuranceopedia Explains Required Minimum Distribution

Required Minimum Distribution (RMD) applies to individuals who do not withdraw from their retirement accounts by the required date. Failure to make the withdrawal can result in a significant tax penalty. The minimum withdrawal amount is based on the account’s value and the owner’s life expectancy, according to IRS calculations. Upon the account owner’s death, the RMD rules change for the beneficiary.

Retirement plans subject to this rule include SEP, IRA, and Simple IRA accounts. Qualified annuities held inside an IRA follow the same RMD rules, so anyone considering an annuity as part of their retirement income should factor those withdrawals into the plan.

The age when RMDs begin is also when many people take another look at their life insurance, so it can be worth comparing top life insurance companies for seniors around the same time.