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Required Minimum Distribution

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Definition:

A Congressionally-mandated distribution from a qualified retirement plan. Starting with the April 1 after you reach 70.5 years old, you must take annual distributions from your qualified retirement plans, such as your 401(k) and IRA. The amount you must distribute is based on the value of your accounts at the beginning of the year for which you are required to take a distribution. That total is then divided by your life expectancy as determined by the IRS.

Roth IRA accounts are not subject to RMDs. Also, a 401(k) where you are still employed is exempt from RMDs.

Failure to take a RMD results in a 50% penalty.

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