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By The-Adviser.com -
- MRD stands for "minimum
required distribution." The Internal Revenue Code established these minimums to
ensure that you actually use your 401(k) plan account balance for retirement (and not, for
instance, to pass onto your heirs). Unless an earlier date is specified by your plan, you
must begin to take a withdrawal (known as a minimum required distribution or MRD) from
your account at least once a year by April 1 of the year following the year in which you
reach 70 1/2, or April 1 of the year following the year in which you retire, whichever is
later. However, if you are a 5 percent owner of your employer, you must begin taking MRDs
by April 1 following the year you reach age 70 1/2.
In each subsequent year, the minimum required distribution must be made on or before December 31. If you do not take an MRD from your retirement account each year, the Internal Revenue Code imposes a 50 percent penalty tax on the amount that should have been withdrawn in the calendar year. This tax is in addition to regular income taxes.
Minimum required distributions must be carefully planned out.
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