Tax-deferred retirement accounts let money grow untaxed for decades, but the tax code does not wait forever to collect. Required minimum distributions, or RMDs, force you to begin withdrawing, and paying tax on, money from certain accounts once you reach a set age, whether you need the income or not.
Starting at an age set by law, holders of traditional IRAs and many workplace retirement accounts must withdraw at least a minimum amount each year, calculated from the account balance and a life-expectancy factor. Those withdrawals are generally taxed as ordinary income. Roth IRAs are notably exempt from RMDs during the original owner's lifetime, one of their planning advantages.
RMDs matter because they can push retirees into higher tax brackets and affect other tax-linked items, and because the penalty for failing to take one has historically been steep. For someone with substantial tax-deferred savings who does not need the forced income, RMDs can be an unwelcome tax event that arrives on the government's schedule, not theirs.
Because RMDs are foreseeable, they can be planned for. Strategies people discuss with their advisors include Roth conversions in earlier, lower-income years to reduce future RMDs, and qualified charitable distributions that can satisfy an RMD while supporting charity. The rules, ages, and amounts change over time, so the specifics belong with your tax advisor. The point is that RMDs reward planning ahead rather than reacting.
The withdrawal is coming. Plan for it early.
This is general educational information, not personalized investment, tax, or legal advice. Consult a qualified professional about your situation.