what is a required minimum distribution rmd 
a required minimum distribution rmd is the amount of money that must be withdrawn annually from certain employer sponsored retirement plans like 401 k s and certain individual retirement accounts iras such as the traditional ira rmds must be taken by april 1 after you turn 73 years old you must calculate and withdraw the correct rmd every year after that or face a penalty from the internal revenue service irs 1 rmds do not apply to roth accounts until after the account owner dies 2investopedia nono floresunderstanding required minimum distributions rmds as noted above a required minimum distribution is the minimum amount of money required to be withdrawn from certain retirement accounts these accounts include 401 k s traditional iras simplified employee pension sep iras and simple iras the money must be taken by april 1 the year after you turn 73 the correct amount must be withdrawn or you will face a penalty rmds are determined by dividing the fair market value fmv of the retirement account in the prior year end using the applicable distribution period or life expectancy 3 your account custodian can tell you what your rmd is or you can calculate it on your own using irs worksheets make sure that you re using the latest worksheets because the tables are updated to reflect life expectancy changes different situations call for different tables for example if you have a non roth ira and the account s sole beneficiary is your spouse and your spouse is more than 10 years younger than you you will need to use a different table than other account holders 4for traditional ira account holders the rmd calculation involves three steps if you don t need the funds from your rmd to live and your income meets the requirements you could use the rmd to contribute to a roth ira special considerationsthere are circumstances when the rmd rules noted above don t apply for instance if the owner of a roth account a 401 k or an ira dies rmds don t need to be taken until after they die 1some qualified plans allow certain participants to defer the start of their rmds until they retire even if they are over 73 this deferment rule generally applies to plans at the workplace where they are currently employed not to iras or qualified plans from previous employers these qualified plan participants should also check with their employers to determine if they are eligible for this deferral older workers who must take rmds from non roth accounts may find themselves in higher taxable income brackets however there are a few strategies like state tax loopholes that they may take to reduce the impact of this rmd boost in annual income while an account holder must withdraw the rmd amount they can also choose to withdraw more than that amount if the account holder wants to withdraw 100 of their account in the first year that s perfectly legal but the tax bill could be a bit of a shock rmd rules can be complex so it s important to review irs publication 590 b distributions from individual retirement arrangements iras when making decisions regarding your distributions from an inherited ira different rules apply to inherited iras for instance however if the account owner died after dec 31 2019 you need to follow the rmd rules established by the secure act these rules distinguish between eligible designated and non designated beneficiaries the timeframe and calculation of your rmd can vary greatly depending on which of these categories define you as a beneficiary some designated beneficiaries may be required to withdraw the entire account balance by the 10th calendar year following the year of the account owner s post 2019 death whereas some non designated beneficiaries may be required to withdraw the entire account balance within five years of the account owner s death 63these rules effectively eliminate the stretch ira an estate planning strategy that some beneficiaries of inherited iras had used in the past to extend the tax deferred benefits of an ira 1if you have multiple iras you may aggregate the rmd amounts for each of them and then withdraw the total from one or a portion of the total from each 7example of a required minimum distribution rmd you must withdraw your rmd from the relevant retirement savings account s by dec 31 every year funds can be withdrawn periodically throughout the year or you can wait until the year s end to earn the maximum interest on your funds here s an example bob a retirement account holder turned 74 on oct 1 his ira was worth 205 000 on dec 31 of the prior year to calculate the annual amount to be withdrawn that prior dec 31 balance is divided by the distribution factor from the relevant irs table that means bob divides 205 000 by 25 5 which is the distribution period from the latest uniform lifetime table for a 74 year old there are other tables for beneficiaries of retirement accounts and account holders with much younger spouses 35rmd 205 000 25 5 8 039 21 begin aligned text rmd frac 205 000 25 5 8 039 21 end aligned rmd 25 5 205 000 8 039 21 divide 205 000 by 25 5 and you get 8 039 22 that s the minimum amount bob needs to withdraw from his retirement account in the current year to avoid a fine there are some other things bob should keep in mind let s suppose bob has multiple iras this means the rmd for each account must be calculated separately depending on the types of accounts involved in this scenario bob may have to take rmds from each account rather than a total amount for all rmds from one account 1fortunately you probably don t need to worry about calculating the minimum amount to withdraw each year generally the custodian of the account can calculate your rmd for you 