what is rmd

A Required Minimum Distribution (RMD) is the minimum amount that U.S. tax law requires one to withdraw annually from traditional IRAs and employer-sponsored retirement plans. The RMD rules are designed to spread out the distributions of ones entire interest in an IRA or plan account over one's life expectancy or the joint life expectancy of the individual and his or her beneficiaries. The purpose of the RMD rules is to ensure that people do not accumulate retirement accounts, defer taxation, and leave these retirement funds as an inheritance. The amount of RMD is calculated by dividing the value of the retirement account by a life expectancy factor, as determined by the IRS. RMDs are determined by dividing the retirement account’s prior year-end fair market value (FMV) by the applicable distribution period or life expectancy. Different situations call for different calculation tables, and IRA account holders whose spouse is the account’s only beneficiary and more than 10 years younger than the account holder use a different table than other account holders. RMDs are never eligible for rollover, and taxes are not required to be withheld at the time of distribution, and may thus be postponed until the individual files a Federal income tax return for the year.