This Retirement Rule Will Be Back With a Vengeance in 2021

The money in your retirement savings account generally can't sit there forever. Unless you have a Roth IRA, you're obligated to remove a portion of your account balance each year once you turn 72. These obligatory withdrawals are known as required minimum distributions, or RMDs, and they're calculated based on your savings balance and life expectancy.

Failing to take RMDs has serious consequences -- namely, a 50% tax penalty on any amount you don't remove. For example, if you're liable for a $10,000 RMD and you only withdraw $6,000, you'll forfeit 50% of the remaining $4,000 to the IRS, resulting in a $2,000 loss.

Not only can RMDs result in penalties, but they can also cause a tax hassle. Traditional IRA and 401(k) withdrawals are taxed as ordinary income, and RMDs fall into the same category -- even though they're obligatory.

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Source Fool.com