What is a Required Minimum Distribution (RMD)?

Smart investors diligently save for decades to help ensure they are prepared for retirement. This includes taking advantage of tax-deferred accounts. These accounts, otherwise known as Traditional accounts, can provide two main benefits for investors.

  • You will generally receive a tax break in the year that you contribute to the account.
  • You will avoid having to pay taxes on investment income and capital gains while the funds are still in the account.

While these tax breaks can be very beneficial for savers, they do not last forever.

Owners of tax-deferred accounts are required to begin making withdrawals each year, starting at a certain age. This is known as a Required Minimum Distribution (RMD).

Recent legislation, known as the SECURE Act, has changed RMD age limits.

If you turn 70 ½ in 2019 or before, you must take your first RMD by April 1, 2020. Your next RMD would be due at the end of the year in 2020. You could choose to take your first one in 2019 and the second one in 2020, or, you could take both in 2020—one before April 1, and one before December 31. After that point, you’ll take one by the end of each year.

If you turn 70 ½ in 2020 or beyond, then you don’t need to worry about taking RMDs until after you turn 72. Your first RMD would be due by April 1st in the year after the year you turn 72. Your next RMD would be due by the end of the year, and then your RMDs would be due at the end of each year moving forward.