While Social Security remains a large part of the majority of Americans’ retirement incomes, most also rely heavily on personal savings. Tools like traditional IRAs and employer-sponsored plans like 401(k)s are powerful tools to help people build their nest eggs over a lifetime, as they allow you to invest money pre-tax.

The tax man never forgets

Here’s the thing: Just because you don’t have to pay taxes on those invested dollars in the year that they go into your retirement accounts doesn’t mean the IRS is letting you off the hook. Instead, you’re delaying that tax bill until later in life, when you withdraw the money. Not only does this allow you to front-load your saving and make the most of the power of compound growth, but most people’s top marginal tax rates in retirement will be lower than their tax rates while they are working.

Importantly, the government has regulations to ensure that it eventually does get its cut: You must begin withdrawing money from these accounts no later than the year you turn 73. The percentage of your balance that you have to take is the required minimum distribution (RMD), and if you’d like to avoid paying penalties, you’ll need to know the rules. For the current tax year, most individuals must take RMDs by Dec. 31, 2024.

Your RMD changes every year — here’s how you calculate it

How can you determine how much you’ll have to take out? First, you’ll need to know what your account balance was at the end of the previous year (in this case, 2023). Your brokerage should make this figure easily accessible. Divide that number by your life expectancy factor — a figure the IRS sets based on your age. The result will be your RMD.

So, what would your RMD be if you had $100,000 in your account at the end of last year and are currently 75? In that case, your RMD would be $100,000 divided by 24.6 (the life expectancy factor for that age), which comes out to $4,066.

The $22,924 Social Security bonus most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

View the “Social Security secrets” »

The Motley Fool has a disclosure policy.