Required Minimum Distributions (RMDs) are the minimum amounts you must withdraw from traditional retirement accounts each year once you reach a certain age—currently 73 if you were born in 1951 or later, or 75 if you were born in 1960 or later. The IRS requires these withdrawals because they want to collect taxes on the money you've been deferring for decades.

Your RMD amount is calculated based on your account balance and life expectancy, and it increases as you age. If you don't take your RMD, the penalty is steep—25% of the amount you should have withdrawn. RMDs apply to traditional 401(k)s, 403(b)s, traditional IRAs, and most other tax-deferred retirement accounts. The good news: Roth IRAs don't have RMDs during your lifetime, which is why they're so valuable for estate planning. Understanding when your RMDs begin and planning for the tax impact helps you stay in control of your retirement income rather than scrambling to meet deadlines or facing penalties.