Required Minimum Distribution

A rule in some retirement systems requiring account holders to withdraw at least a set amount each year after reaching a certain age.

Example

From a set age, a retiree must withdraw a percentage of their pre-tax account balance each year and pay tax on it.

Important

Forced withdrawals create taxable income whether or not you need the money, and the ages and rules change with legislation.

Related terms

  • Pre-Tax Contribution — A retirement contribution made before income tax is applied, with tax paid instead when money is withdrawn.
  • Taxable event — The moment a tax system treats something as having happened - most commonly a sale, rather than an increase in value while you still hold the asset.

Lessons that explain it

  • Early access is expensive, fees compound, and the rules can change — The main costs of retirement accounts are taxes and penalties on early withdrawal, fees inside the plan, and the risk that governments change contribution, withdrawal or tax rules. (11 min)

All 578 terms in the Investing glossary