Neglecting to withdraw a required minimum distribution (RMD) from an IRA by the due date brings about a painful tax code penalty: 50%. Yes, you read that right. If you are supposed to withdraw at least $4,000 and (uh oh!) did not do as such, you have to write the IRS a check for $2,000. Keep in mind that on January 1, 2020, the RMD rules were modified.

In case you're like most investors, you're probably trying to build a financial portfolio that is solid enough to guarantee a comfortable retirement. Among retirement financial planners, this is known as the "accumulation phase." In this stage, your objective is to carefully invest by selecting stocks with long-term potential for your retirement nest egg. For example, you might choose CVS Health (CVS Quick QuoteCVS - Free Report) , which is a current top ranked dividend stock.

There is also a second phase of retirement planning that gets less focus - despite the fact that it's the more interesting part. It's the "distribution phase," which essentially means spending the wealth you've worked hard to amass.

Planning for the distribution phase is the time where you may make decisions about where you'll want to live in retirement, whether you'll want to travel, hobbies you may pursue, and other decisions that will affect your retirement spending.

Along with these aspects, it is important to consider the RMD that applies to most retirement accounts. Essentially, the IRS requires you to withdraw a specific sum from your qualified retirement accounts once you attain a certain age. That age used to be 70 1/2 but it is now 72.

Why does the IRS require these distributions? It's straightforward - they need to ensure they get their tax. In the event that this standard didn't exist, individuals could live off other pay and never pay tax on their retirement investment returns. So, that cash could be left to family or companions as an inheritance without the IRS getting any taxes from you.

Key Facts to Know About RMDs

What types of retirement accounts have RMDs? Qualified retirement accounts such as IRA accounts, 401(k)s, 457 plans and other tax-deferred retirement savings plans like a TSP, 403(b), TSA, SEP, or SIMPLE IRA plan require withdrawals in retirement.

When do I need to begin withdrawals? For most accounts, you should take your first distribution by April 1 of the year following the calendar year in which you turn 72. If you retire after 72, you must withdraw your first RMD from your 401(k), profit-sharing, 403(b), or other defined contribution plan by April 1 of the year following the calendar year that you retire.

Every year after your start date, you are required to take your RMD by December 31. Remember, for Roth IRAs you do not have to take an RMD because you paid taxes before contributing. However, other types of Roth accounts do require RMDs, but you may be able to avoid them (for instance, by rolling your Roth 401(k) into your Roth IRA).

What will happen if I neglect to take my RMD? If you don't take an RMD, or don't take a large enough distribution, you are liable for a 50% tax on the amount that was not withdrawn in time.

How much cash do I need to withdraw? To figure out a particular RMD, you should divide your earlier year's December 31st retirement account balance by a "distribution period" factor dependent on your age.

Here's an example to give you an idea of the amount: Ann is 71 and will take her first RMD in the year following the year she turns 72. Her IRA balance at the end of the prior year was $100,000. Her "distribution period" factor is 27.4. Dividing $100,000 by 27.4 equals $3,649.63. This is how much Ann is required to withdraw for her first RMD.

Learning about the "distribution phase" is just one aspect of preparing for your nest egg years.

To learn more about the tax implications of retirement spending - and much more about retirement planning - download our free guide: Retirement Made Easy.