When you reach age 70½, you're required to withdraw a certain amount of money from your retirement accounts each year. That amount is called a required minimum distribution, or RMD.
RMD rules apply to tax-deferred retirement accounts:
- Traditional IRAs
- Rollover IRAs
- SIMPLE IRAs
- SEP IRAs
- Most small-business accounts
- Most 401(k) and 403(b) plans
Taking RMDs
The deadline for taking RMDs is December 31 each year. If you have an IRA, you may delay taking your first RMD (and only your first) until April 1 of the year after you turn 70½. If you choose to delay your first RMD, you'll have to take your first and second RMD in the same tax year. To understand how delaying your first RMD impacts your taxes and future RMDs, review your options.
For your workplace retirement accounts, if you are still working and don’t own 5% or more of the business you’re employed by, you may be able to delay taking an RMD until April 1 of the year after you retire. Keep in mind, this rule does not apply to IRAs or plans with companies you no longer work for.
Don't miss your RMD deadline, because regardless of your account type, the IRS penalty may be severe—50% of the amount not taken on time.
Consider creating a retirement income strategy for taking withdrawals that includes all of your retirement income sources.
Article taken as excerpt from Fidelity