What exactly is an RMD anyway?

So you've been saving for retirement all these years and now you hear that you have to start taking distributions from your retirement nest egg? What gives?! Well, that's because of a law mandated by the IRS in the United States that requires individuals with a qualified retirement account (think Traditional IRA) to withdraw a predetermined amount of money each and every year upon reaching the age of 72. This is your "Required Minimum Distribution," or RMD. Your RMD is calculated by dividing prior year-end account balances by a life expectancy factor determined by the IRS (to keep it simple). So if your retirement account is tax-deferred and you are nearing the age of 72, it behooves you to discuss distribution strategies with your financial professional because one way or another, you must take your RMD. Why? Well, Uncle Sam wants his money of course! The benefit of a tax deferred retirement account is that contributions have compounded dollar for dollar with no taxes taken out. But by the time you reach 72, the government wants their piece of pie, and that's what the RMD facilitates. Don't want to be told when and where to take your own money? Ask about a Roth account!

-Your Friends at Red Oak Financial Group