A Required Minimum Distribution is an amount that an owner of a Qualified Retirement Plan - (401(k), 401(a), 403(b), SEP IRA, 457 Plan, Simple IRA Plan, Keogh Plan/HR-10), or investments - is required to withdraw from their account by a given age. The amount that you must withdraw as a Required Minimum Distribution is decided by the government. Under the most recent SECURE ACT 2.0, the beginning distribution age has been raised from 72 to 73 years old. This distribution schedule is based on the Uniform Life Table which can be found on the IRS’ website. And, again, you have to take it. Why? Because the government wants to make a portion of your savings taxable income so that they can claim some of it before you get older in years and liquidate it all. If you do not take out this distribution, then the IRS will levy a 50% tax on what would have been in addition to your withdrawal.
For example, if your Required Minimum Distribution is $3,000 and you don’t withdraw it, then you will get taxed $1,500. You will be forced to take out the $4,500, and pay a tax on that withdrawal. So serious is the IRS with this rule that any financial investor you do business with is required to make you aware of it under threat of penalty. So, if you are banking on financial security with a 401(k), be advised that what you really own is a parcel of the tax code.
