Here's how it works. Tax-deferred accounts, like Traditional IRAs or 401(k)s, allow you to contribute money pretax a significant benefit for some investors. The longer you wait to withdraw money, the longer it can grow without being taxed.
But you can't avoid paying taxes on that money forever.
At a certain point, the IRS requires you to start taking an RMD, which is usually taxed on withdrawal.
Required Minimum Distributions (RMDs)
You typically have to take the first RMD by April 1st of the year after you reach RMD age.
A 2019 change to the law means that for people born on or before June 30 1949, their RMD age is 70 ½.
For those born after June 30, 1949, their RMD age is 72. After that first withdrawal, you're required to take an RMD by December 31st every year.
Your RMD is calculated based on a variety of factors, including age and account balance.
Beneficiaries may also impact your RMD. Because of these factors, your RMD may vary from year to year and from account to account.