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Simple English definitions for legal terms
Required minimum distribution
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A quick definition of Required minimum distribution:
Required minimum distribution: When you save money in an Individual Retirement Account (IRA), you have to take out a certain amount of money every year once you reach a certain age. This is called the required minimum distribution or RMD. You can take out more than the minimum if you want, but you have to take out at least that much. The amount you take out is considered taxable income. The rules for RMDs are set by the government.
A more thorough explanation:
Required minimum distribution (RMD) is the smallest amount of money that a person must withdraw from their Individual Retirement Account (IRA) each year. This requirement starts when the person reaches either 70-and-a-half years of age or 72 years of age if their birthday falls after July 1, 2019. The RMD amount is considered taxable income.
For example, if a person has an IRA with a balance of $500,000 and they are required to take out a 4% RMD, they would need to withdraw $20,000 that year. However, they are allowed to take out more than the RMD if they choose.
The regulations for RMDs are established by Treasury Regulation § 1.401(a)(9). These regulations ensure that people do not keep their retirement savings in tax-advantaged accounts indefinitely and eventually pay taxes on the money they have saved.