Because your balance may have changed from December 31 to the date you reach age 70.5, using that balance may result in an inaccurate calculation. To play it safe, you should calculate your required minimum distribution (RMD) based on your account balance as of December 31 of the previous year. For instance, if you are calculating your RMD for 2006, you want to use the market value as of December 31, 2005.
Now let's assume that your RMD for the year is $10,000. You RMD will be satisfied as long as you withdraw $10,000 by the deadline. If you withdraw $12,000 during the year, the extra $2,000 cannot be used toward the next year's RMD, as only amounts withdrawn during the year can be counted toward your RMD for the year.
If you reach age 70.5 this year, you have until April 1 of next year to distribute your RMD for this year. Any amount that you withdraw during next year in excess of this year's RMD can be counted toward next year's RMD.
Let's look at an example:
Assume you reach age 70.5 this year, making this year's RMD your first. Any amount you withdraw this year will apply to this year only. But assume that you withdraw $8,000 this year and $4,000 in January of next year. Because $2,000 of what you withdraw next year is in excess of this year's RMD, that amount can be counted toward next year's RMD, because it's withdrawn during next year.
Similarly, if you withdraw $12,000 in January of next year, the extra $2,000 can be used toward next year's RMD because it's withdrawn during next year.
To learn more, read Avoiding RMD Pitfalls and Strategic Ways To Distribute Your RMD.
Question answered by Denise Appleby, CISP, CRC, CRPS, CRSP, APA

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