RMD: Why should I care about it?

Did you turn 73 this year, or perhaps are much older? A required minimum distribution (RMD) is the minimum amount you must withdraw from your tax-deferred retirement accounts every year after a certain age. At some point in your life, you may have put money into tax-deferred retirement accounts, such as Individual Retirement Accounts and 401k workplace retirement accounts. 

The key word here is “tax-deferred.” You postponed taxes on your contributions and earnings; you didn’t eliminate them. Eventually, you must pay tax on your contributions and earnings. RMDs make sure that you do that. You must start taking RMDs by April 1 of the year after you turn 73. Let’s say you celebrated your 73rd birthday on July 4, 2024. You must take the RMD by April 1, 2025. You’ll have to take another RMD by Dec. 31, 2025 and by Dec. 31 each year after that. (For tax year 2022, the age for starting RMDs was 72.) This applies even if you are still employed.

Please note that taking two RMDs in one year can possibly increase your taxable income and put you in a higher tax bracket.
What type of retirement accounts require RMDs? Traditional IRAs, Simplified Employee Pension (SEP) IRAs, Savings Incentive Match Plan for Employees (SIMPLE) IRAs, 401(k)s, Nonprofit 403(b) plans, Government 457 plans, Profit-sharing plans and other defined contribution plans.
Roth IRAs are funded with after-tax contributions, and they don’t require RMDs until after the owner dies. 

Don’t skip an RMD. If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50 percent excise tax on the amount not distributed as required, according to the IRS.

Please consult your tax advisor for complete details. By law, investment companies are required to send an RMD notice by January 31 of each year.