Imagine for a second if you had to take all the investments that you own and that people in the general public own, and you had to place them into 3 different buckets. The first one we'll call the tax-deferred bucket, which will include things like IRAs, 401(k)s, 403(b)s, and 457(b) plans. Many of you won't have all of these types of plans, but you might have one or a few of them. Now, when you put money into this bucket, it gets put in on a pre-tax or a tax-deductible basis, which means it saves you money in taxes in the year you put money into that bucket. The money grows on a tax-deferred basis, and when you pull it out, generally speaking, 100 percent of that money, when you're withdrawing it in retirement to supplement your income, is going to be subject to income tax. If you take it out for qualified reasons, you'll only pay income tax. If you take it out for unqualified reasons, you might even have to pay a penalty on top of that. And you will have to take money out of this at some point. Depending on your date of birth, you might have to start taking money out at age 73 or as late as age 75, because eventually the government wants to get some of the taxes that they haven't collected from this bucket at some point in time. That's why you have those required minimum distributions.

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