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Required minimum distributions (RMD)s and what they mean

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You've spent years saving for retirement, but you can't keep those funds in your account indefinitely. Generally, once you're 72* years old, you need to start pulling money out in what's called required minimum distributions, or RMDs.

And it's not quite as simple as taking a little cash out and calling it a day. If you don't take out enough, you'll be penalized by the IRS. Here's what you need to know to take your distributions wisely.

What is an RMD?

It's "the mandated amount that must be taken from qualified retirement accounts, such as IRAs, starting in the calendar year that the owner turns 72," says Mark Snyder, ChFC, of Mark J. Snyder Financial Services in Medford, N.Y., in an interview with Athene.

Who needs to take them?

Anyone who is older than 72 with an IRA, SIMPLE IRA, SEP IRA or retirement plan account like a 401(k).

Why do these requirements exist?

So that retirement accounts, most of which are fueled with pretax dollars, aren't used as a tax dodge. RMDs "ensure that people don't just accumulate retirement assets to defer taxes and leave it to their heirs," says Snyder. That's why Roth IRAs are exempt from lifetime RMDs: They are filled with post-tax money, and no money needs to be taken out until the owner dies.

How much do I need to take?

That depends on the value of your accounts and your age. You can use the IRS Uniform Lifetime Table to do that calculation. "If your spouse is more than 10 years younger, you would use the Joint Life Expectancy Table, which could lower your RMD," says Snyder. These tables and a worksheet are available at

What about taxes?

If you used pretax money to fund your retirement account, this is the time that the government gets their share. "RMDs are considered to be ordinary income and are taxed accordingly," says Snyder.

Are there exceptions?

Yes. "In the calendar year you turn 72, you can defer your RMD until April 1 of the following year," says Snyder. "But you will need to take a second RMD in that year."

If you are still working at 72 and contributing to a 401(k) plan, you don't have to take an RMD until you retire. Also, since Roth IRAs are funded with post-tax money, withdrawals aren't required until the death of the owner.

What happens if I don't take an RMD?

If you don't take what the IRS tells you is required, the amount not withdrawn will be taxed at 50 percent.

The takeaways?

Understand the kinds of retirement accounts you have, and remember when you turn 72, you're required to take money from the ones funded with pretax dollars, with a couple of exceptions. If you don't take enough money out of your account, or if you don't withdraw any at all, you'll be penalized by the IRS. Finally, work with your financial professional to build a retirement income plan that will maximize your savings, follow IRS rules and help you retire your way.

Want the most from your retirement? Get smarter with Smart Strategies from Athene. Your source for tips, tools and financial solutions that can help you live your best life.

Any information regarding taxation contained herein is based on our understanding of current tax law. The tax and legislative information may be subject to change and different interpretations. We recommend that you seek professional legal advice for applicability to your personal situation.

*Historically, federal tax law has set the required beginning age for RMDs at age 70 ½. However, recently enacted federal legislation increases the required beginning age for those born on or after July 1, 1949, to age 72. If you were born before July 1, 1949, your required beginning age for taking RMDs remains age 70 ½.