Required minimum distributions (often abbreviated as RMDs) are withdrawals that the federal government requires you to take annually from certain individual retirement accounts (IRAs) and certain employer-based retirement plans after you reach age 70 ½. The purpose behind RMDs is to ensure retirees aren’t able to indefinitely defer taxation on retirement assets, only to pass those funds on as an inheritance.

Generally, your first required distribution from a traditional IRA or employer-based retirement plan is in the year you reach age 70 1/2. And while you can withdraw more than you’re required to, if you withdraw less (or fail to make a withdrawal entirely), you can be subject to costly federal penalties. RMDs can also have implications on your federal and state taxes, which makes understanding the RMD rules critical.

That's why we recommend you take a couple minutes (2:15) to watch this video, which provides an excellent overview on the rules and requirements of RMDs.