Making tax-deductible contributions to your retirement accounts can seem like a luxury. However, they might become a burden in retirement if you don’t plan ahead.
If you’ve been saving in a 401(k) or other employer-sponsored retirement plan, a traditional IRA or other IRA-based plans, Uncle Sam will eventually come knocking for the tax revenue in the form of required minimum distributions (RMDs). An RMD is the minimum amount you must withdraw annually to avoid a tax penalty. The account owner is taxed at their income tax rate at the time of the withdrawal on the amount of the withdrawn RMD. The income from your RMD will be added to all your other taxable income to determine how much income tax you must pay for the year.
