Required Minimum Distribution (RMD)
Definition
The minimum amount you must withdraw annually from tax-deferred retirement accounts (traditional IRAs, 401(k)s, 403(b)s) starting at age 73 (as of 2023). RMDs are calculated by dividing your account balance as of December 31 of the prior year by an IRS life expectancy factor. Failure to take RMDs results in a 25% excise tax on the amount not withdrawn (reduced to 10% if corrected within two years). Roth IRAs are exempt from RMDs during the owner's lifetime.
Example
At age 73, your traditional IRA balance is $500,000 and the IRS life expectancy factor is 26.5. Your RMD is $18,868, which will be taxed as ordinary income.