Avoid pitfalls as retirement distribution deadline nears
The way it does so can feel like an abrupt change, especially if you've spent decades considering those accounts off limits.
RMDs are required from tax-deferred retirement plans: traditional individual retirement accounts, SEP and Simple IRAs, and workplace plans like 401(k)s. They're not required from Roth IRAs.
The amount you need to withdraw is based on an IRS calculation that divides your account balance at the end of the prior year by a life expectancy factor for your age.
The RMD will be calculated separately for each retirement account, and account providers typically do the math for you.
Generally, you can elect to sell a proportionate amount of each of your investments to satisfy the distribution, or a fixed percentage from one or two investments.
"Some people want it to come 100 percent from XYZ fund, but others may want to keep their asset allocation and sell proportionately from all of their holdings," Cassidy says.
If your account has a cash allocation, you can pull the RMD from there to avoid selling stocks or mutual funds.
If you're fortunate enough not to need this income, it's a bummer that the IRS is forcing you to give up tax-deferred investment growth.