If you’re taking your first required minimum distribution (RMD) this year, there are a few rules to keep in mind. While RMDs may seem complicated, understanding them can help you avoid unnecessary penalties.

Join Heath Grossman, CFP® as he answers your top RMD questions in this week’s Money Wisdom Question Series.

What Are RMDs?

An RMD is the minimum amount you must withdraw each year from tax-deferred retirement accounts. These accounts include 401(k)s, 403(b)s, 457 plans, and traditional IRAs. While you were working, they allowed you to build up your retirement savings and receive an immediate tax deduction.

However, those funds cannot remain untaxed forever. Once you reach a certain age, you must start withdrawing at least a minimum amount each year in the form of an RMD.

Which Accounts Are Exempt from RMDs?

Generally, Roth 401(k)s and Roth IRAs do not have RMDs during the owner’s lifetime. You can make those withdrawals whenever you choose and without penalty after age 59½. Certain types of inherited Roth accounts, however, have different rules and may still have RMDs.

How Are RMDs Calculated?

You can calculate your RMD using a formula published by the IRS called the Uniform Lifetime Table. The calculation also uses the balance of your retirement account at the end of the previous year. A financial advisor can provide exact information regarding the amount of your RMD.

What Happens If I Don’t Take My Full RMD?

If you fail to take your full RMD, the IRS may impose a penalty. Generally, a 25% penalty applies to the amount you did not withdraw. However, the IRS may reduce that penalty to 10% if you correct the mistake within two years.

Are RMDs Taxable?

You typically pay ordinary income tax on RMDs in the year you take them. To lower your tax obligation, you may consider making a qualified charitable distribution (QCD). A QCD can satisfy your RMD requirement without counting as taxable income.