The federal government encourages retirement savings by offering a tax break for anyone who contributes to certain retirement accounts like a 401(k) or IRA. If you save money in a traditional tax-deferred retirement account, you can deduct the amount you put in on your tax return this year. That gives you more money to invest right now.

But ultimately Uncle Sam wants his tax revenue. You can't defer taxes forever because the government imposes required minimum distributions. Seniors must start withdrawing funds from tax-deferred retirement accounts starting in their 70s, and some inherited IRAs may be subject to RMDs as well. And whenever you make a withdrawal from one of those accounts, you'll have to pay the taxes you put off years ago.

The penalties for missing a required distribution can be quite steep. You could owe up to 25% of the amount you were supposed to withdraw if you don't do so in a timely manner. And you'll still have to make the withdrawal and pay the taxes on it anyway.

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Source Fool.com