The federal government loves its acronyms — EPA, FBI, CIA, IRS. But for retirees, among the most important acronyms to understand is this: RMD.
RMD stands for required minimum distribution, three seemingly simple words that are fraught with financial implications. What is their significance? Simply this: Once you reach a certain age, the IRS will require that you begin withdrawals from your tax-deferred retirement accounts, such as traditional IRAs or 401(k)s. You will have to make those withdrawals annually even if you keep working, don’t need the money and even if the markets are down and you prefer to wait for a recovery to regain losses. Failure to take your RMD will result in a stiff excise tax penalty.
