What Is an RMD and How Will It Help You Retire?

RMDs impact our retired lives. wavebreakmedia/Shutterstock

When it comes to your retirement, you did everything right to be ready. You developed a retirement plan that took into account your lifestyle, health care, and potential bumps in the road. And, you went ahead and created a budget to ensure that your retirement plan would come to fruition. Do you have everything ready for retirement?

Everything seemed to be running smoothly until at age 72, when you have to worry about something called an RMD. But, what exactly is an RMD and how can it impact your retirement?

RMDs 101

RMD is short for the required minimum distribution and is the required amount of money you must withdraw from an employer-sponsored retirement plan that’s also tax-deferred. These investment accounts include:

• Traditional IRAs
• Rollover IRAs
• SIMPLE IRAs
• SEP IRAs
• Most small-business accounts (Keoghs)
• Most 401(k) and 403(b) plans

If you have any of these accounts, then annual withdrawals must be made once you reach age 72—or if you turned 70½ in 2019. Please, also note, that the CARES Act that was passed in 2020 suspended RMDs. However, that one-year hiatus is over, so people who are currently 72 or older must resume or start RMDs by the end of the year if they want to avoid getting penalized.