Are you Familiar with Required Minimum Distrubution or RMD?

Required Minimum Distribution, or RMD, are the funds which must be withdrawn from traditional IRAs and most other types of retirement plan.

Balances from all IRAs must be distributed; the complex set of rules that cover exactly how this must be done are referred to as the required minimum distributions. There is a severe penalty for any funds that are not distributed correctly.

Different rules apply to the way funds are distributed from traditional and Roth IRAs. Traditional IRAs are covered by rules that require the distribution to be started after the owner turns seventy and a half years. Roth IRAs have distribution carried out after the owner of the plan dies, making these types of fund an attractive alternative for many.

April 1, the year after the age of 70 and a half is reached, is the latest date for the required distribution to commence. When the plan is employer sponsored, this date applies the year after the owner of the plan retires. While you can withdraw more than the required minimum amount, there are stiff federal penalties for withdrawing less than this required amount from your fund.

This RMD legislation was originally aimed at evenly spreading withdrawals over your total lifespan, and also that of your beneficiary. The goal was to prevent the accumulation of money, which are tax-deferred, in IRAs, which was then simply transferred as an inheritance to a beneficiary. The law means you have to withdraw at least some of the money while you are living.

Required Minimum Distribution cannot be rolled over, they must be withdrawn. The amounts withdrawn are taxable in the tax return that follows the withdrawal date. Plans that are sponsored by an employer are subject to the same rules, although the starting date for withdrawals may be delayed. RMD for the 2009 year have been suspended by Congress, although this has not affected distributions for 2008.