Required Minimum Distribution (RMD) is the amount you have to withdraw from retirement plans, according to the laws that govern them.
Federal law dictates that, after a certain age, holders of IRAs and other types of retirement funds must withdraw some of their funds. The rules which govern how this is done are called Required Minimum Distribution. If you are in a situation that is covered by this legislation, there is no way to avoid it; in fact, a penalty of 50% is applicable for any funds that are not distributed correctly.
Required Minimum Distributions are made complex by the fact that the rules vary for different types of retirement plans. Traditional IRAs must start being withdrawn after the policy holder turns seventy years and six months. Roth IRAs do not have to be distributed until after the policy owner dies; this makes the Roth IRAs an attractive option.
The date for distribution of a traditional retirement plan is April 1 in the year the owner reaches the age of seventy and a half. If the IRA is an employer retirement plan, this date is usually in the year after retirement. There is a minimum amount that has to be taken out; you can withdraw more than the minimum but federal penalties would apply if less than the minimum amount is taken out.
While the rules of RMD are complicated, there is an intention behind the legislation. The legislation aims to spread out the withdrawals over your life expectancy, and also the life expectancy of your beneficiary. This stops people from using their tax-free retirement funds to accumulate money so that they can leave the full amount to a beneficiary. Retirement funds are intended to fund your retirement, not to store assets to pass on as an inheritance. This is why the law states that you must withdraw funds while you are alive.
You cannot roll-over withdrawals under the Required Minimum Distribution legislation. Funds must be withdrawn, not re-invested and are subject to income tax when the policy owner files their next tax return. Legislation was passed at the end of 2008 to suspend RMD for 2009; this will impact withdrawals for the current year.
If you have more questions regarding Required Minimum Distribution you can get a more complete explanation at the site. Additionally, if you are interested in how RMD might impact your unique situation you can look up the RMD tables based on your age.
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