The Required Minimum Distribution (RMD) is a federal regulation that requires individuals over the age of 70 1/2 to withdraw a certain minimum amount annually from their tax-deferred retirement accounts such as Traditional IRA and 401(k) plans. The purpose of RMD is to ensure that individuals begin to pay taxes on their retirement savings, and prevent the deferral of taxes indefinitely.
The RMD amount is calculated based on the account balance at the end of the previous year and the owner's life expectancy as determined by the IRS life expectancy tables. Failure to take the RMD can result in a 50% penalty on the amount that should have been withdrawn.
It's important to note that not all retirement plans have RMDs, and certain types of accounts, such as Roth IRAs, are exempt from RMDs. Additionally, certain individuals, such as beneficiaries of inherited retirement accounts, may have different RMD requirements.