retirement

What is a required minimum distribution?

 

What is a required minimum distribution?

The Bankrate.com financial term of the day is: "required minimum distribution."

To enjoy the tax advantages of an individual retirement account, you've got to follow the rules -- and that includes taking a required minimum distribution. It's an amount of money that must be withdrawn from a traditional, tax-deferred IRA each year, once you turn 70 ½ years old. The first required minimum distribution must be taken by April 1 of the year after you reach the age threshold. If you fail to make the taxable withdrawals, you can be hit with an expensive tax penalty.

The Internal Revenue Service allows you to put off paying taxes on income placed into a traditional IRA, but it does want to get some money eventually. So, you'll have to take required minimum distributions after you hit age 70 ½.

For help setting yourself up for a comfortable retirement, visit the Retirement section at Bankrate.com.

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