If you have worked or paid taxes in the past 35 years, you likely already know about tax-deferred retirement accounts.These accounts come in quite a few flavors (IRA, SEP, SIMPLE, 401(k), 403(b), etc.), but what they all have in common is a deal made by the government: taxpayers can defer part of their salary and invest that money into these accounts, and the government will not count that money or any investment returns as income until the money is distributed out of the accounts. You, the taxpayer, give up your right to use the money without a penalty (barring special circumstances) until age 59 ½. The government wants taxpayers like you to save for retirement, so it is willing to delay tax receipts. Most taxpayers are happy to delay paying taxes, so they are more willing to save and invest. Once you begin thinking about retirement, you will probably hear a new term: Required Minimum Distribution (RMD). This is the final part of the deal. The taxpayer must begin taking money out of the accounts at some point, and the RMD rules are the way the government ensures that happens.Who?Any owner of a retirement account is subject to RMD rules. The specific rules can vary across the different flavors (see above), but the same concept applies to all of them. This article draws mainly on rules around IRAs. If you inherited your account, there are special rules for your RMD.Why?Uncle Sam always gets paid, which means that the “deferred” part of the tax-deferred account cannot last forever.Most people will count on using their retirement accounts to fund their retirement, but many retirees can live comfortably without needing to use their tax-deferred accounts, so the RMD rules force the accounts to be drawn down and taxed.When?Generally speaking, distributions must begin in the year a taxpayer turns 70 ½. There is a special “still working” exception for employer-sponsored plans—such as 401(k) accounts—that allow deferral to continue until you actually retire, regardless of your age.If you inherit an account from your spouse, the account is treated as if it was always yours, and your RMD follows the general rules. However, if you inherit a retirement account from someone who is not your spouse, you will be required to begin taking distributions in the calendar year after the owner’s death, regardless of your age.How much?Most taxpayers use the Uniform Life Expectancy Table produced by the IRS. For a given year, the RMD is calculated by dividing the prior December 31 value of all the taxpayer’s retirement accounts by the factor assigned by the table.The resulting amount must be withdrawn from the accounts by December 31 of the current year. As the taxpayer gets older, distributions, as a percentage of the account value, increase.What if I forgot?The penalty is a severe 50% of the required distribution, on top of the tax that is owed on the distribution itself.Fortunately, the IRS has developed a procedure to correct overlooked distributions, and has been fairly generous in waiving the penalty for self-reported mistakes. As more retirement accounts become subject to RMDs, it would not be surprising for the IRS to become less generous in waiving the penalty.While the general concepts behind RMD rules are fairly straightforward, the specifics can quickly become complex. For instance, there are different sets of rules for IRAs and employer-sponsored plans, and separate procedures for distributions from an inherited IRA. Additional RMD income can affect the taxability of Social Security benefits, the deductibility of medical expenses, the tax rate of capital gains—even Medicare premiums—and the penalties for failing to correctly perform the distributions can be steep.The good news is that complexity can provide opportunities for good planning. If you would like to discuss strategies for how to minimize the tax effects of your RMDs, or if you just want to make sure they are being correctly calculated and distributed, please call our office and we will be happy to set up an appointment for you. You can reach the Morgantown office at 304-292-9469 or the Weston office at 304-997-8377.The materials contained herein are for general information and education purposes based upon publicly available information from sources believed to be reliable. To the extent that the material concerns tax matters, it is not intended to be tax advice. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.Securities and Investment Advisory Services offered through Allegheny Investments, LTD a registered investment advisor and registered broker/dealer. Member FINRA/SIPC. Stone Quarry Crossing, 811 Camp Horne Road, Suite 100, Pittsburgh, PA 15237. (800) 899-3880.