3 Lesser-Known Pitfalls of Required Minimum Distributions
There's a benefit to saving for retirement in a traditional IRA or 401(k) plan. The money you contribute, up to the allowable limits set by the IRS, can serve the very important purpose of exempting some of your income from taxes, all the while giving you access to funds you can use later in life.
But the problem with housing your nest egg in a traditional retirement plan is having to deal with required minimum distributions, or RMDs, down the line. RMDs are calculated each year based on your retirement plan balance and life expectancy. But in a nutshell, they force you to remove a portion of your traditional IRA or 401(k) balance each year or otherwise risk a penalty.
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Source Fool.com
