Required Minimum Distribution (RMD)

A required minimum distribution (RMD) is the minimum amount the IRS requires an account holder to withdraw each year from certain tax-deferred retirement accounts, such as traditional IRAs and many employer plans, once they reach the required age. The withdrawal is generally taxed as ordinary income, and missing it can trigger a penalty.

Advisors project RMDs years in advance because a large tax-deferred balance can force sizable taxable withdrawals later, pushing a client into higher brackets or increasing Medicare and Social Security taxation. That projection shapes earlier decisions — Roth conversions, charitable giving, and withdrawal sequencing — to smooth the tax curve over a lifetime.

Advisors care because RMD planning is a concrete, recurring reason clients keep an advisor engaged.

• Applies to specified tax-deferred accounts at a required age
• Withdrawals are generally taxable
• Drives conversion and withdrawal-order strategy

Advisors model RMDs inside financial planning software, which projects future balances and coordinates them with the rest of a client's plan.