The Purpose of the RMD

If you have an IRA, you are very familiar with the term “required minimum distribution” (RMD) and what it is. RMDs are those payments you have to take from your IRA when you reach age 70½, but do you know what the purpose behind RMDs is? RMDs were created as a part of legislation by Congress designed to help people save for retirement. While creating that legislation, Congress did not want people to use the retirement plans and guidelines it created to compile a chunk of tax-deferred money for the purposes of passing it on to future generations. There needed to be something within the legislation that would force people to use to money on retirement, hence where RMDs come in. While you are free to use money taken out of RMDs for whatever you wish, you are still required to take an RMD our of your IRA and, in the process, spend down your retirement savings. If you’ve saved enough, you can still have a nice amount of change left over the pass on to your heirs, but that’s only if you’ve amassed more than you need. If you have questions about RMDs and what to use the money from them for, you should speak with a certified financial planner.