Required Minimum Distributions (RMDs) are the minimum amount of money that must be withdrawn from certain retirement accounts once you reach a certain age. The purpose of RMDs is to ensure that individuals do not indefinitely defer paying taxes on their retirement savings.

For most retirement accounts, including traditional IRAs and 401(k) plans, you are required to start taking RMDs once you reach age 72. However, if you turned 70½ before January 1, 2020, you fall under the old rules and must start taking RMDs at age 70½.

If you fail to take your RMDs, you may be subject to a hefty penalty. The penalty for not taking your full RMD is 50% of the amount that should have been withdrawn. It’s crucial to remember to take your RMDs to avoid this penalty.

RMDs are calculated based on your age and the balance in your retirement account. The IRS provides tables to help determine the amount you must withdraw each year. The calculation takes into account your life expectancy and the balance in your account at the end of the previous year.

While you cannot avoid taking RMDs from traditional IRAs and 401(k) plans, you can potentially delay taking RMDs from your current employer’s 401(k) plan if you are still working and not a 5% or more owner of the company. It’s essential to consult with a financial advisor to understand your options.