A:

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 If you withdraw $12,000 during the year, the extra $2,000 cannot be used toward the next year's RMD, as only amounts withdrawn during the year can be counted toward your RMD for the year.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you withdraw next year is in excess of this year's RMD, that amount can be counted toward next year's RMD, because it's withdrawn during next year.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if you withdraw $12,000 in January of next year, the extra $2,000 can be used toward next year's RMD because it's withdrawn during next year.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

RELATED FAQS
  1. When I reach 70 1/2 years old, do I have to start taking out RMD?

    My father has me as the annuitant on one of his annuities. ... Read Answer >>
  2. Can I defer my RMD or stop it?

    I am 76 years old. This year, I will have W2 income of $100,000 plus a SS income of $45,000. ... Read Answer >>
  3. When should a surviving spouse over 71 take their first RMD after rolling over an ...

    My husband passed away on March 4,2015 at the age of 67. I originally set the IRA up as being an inherited IRA since I was ... Read Answer >>
  4. Can I put away any of my income pretax in a retirement account?

    I am 75 years old. I have a RMD income of $60,000 plus a SS income of $45,000. I am expected to earn a W2 income of $100, ... Read Answer >>
  5. Can I pay my RMD with money outside of my retirement account?

    I own a variable annuity fund that I am converting to monthly payments. It almost reached maturity (i.e. 2/1/2017) and I ... Read Answer >>
  6. Can I combine the required minimum distributions from retirement accounts so I only ...

    I have two IRAs, a 401k, and a Roth IRA.  I turn 71 next September.   ... Read Answer >>
Related Articles
  1. Personal Finance

    Avoiding Mistakes In Required Minimum Distributions (RMD)

    If you don't calculate your required minimum distributions accurately, you might have to pay an excise tax.
  2. Financial Advisor

    Best Ways to Avoid RMD Tax Hits on IRAs

    If you want to avoid hefty tax penalties, read this cheat sheet on IRA required minimum distributions.
  3. Retirement

    Preparing For Retirement Plan RMD Season

    Paying taxes is inevitable - that's why you need to learn about the rules for required minimum distributions.
  4. Financial Advisor

    Advisors: Clients Must Take First RMD by April 1

    For clients required to take their first required minimum distribution from a retirement account, April 1 is a key deadline not to be missed.
  5. Retirement

    3 Steps To Take If You Miss Your RMD Deadline

    If you fail to take the required minimum distribution from your retirement account, you need to take proper steps.
  6. Retirement

    Smart Ways to Tap Your Retirement Portfolio

    A rundown of strategies, from what to liquidate first to how much to withdraw, along with their tax consquences.
  7. Retirement

    Understanding Required Minimum Distributions

    There’s certainly a danger in taking too much money out of your investments after you retire. But when it comes to tax-advantaged accounts like IRAs and 401(k)s, withdrawing too little ...
  8. Retirement

    Don't Forget To Take Minimum Distributions

    Take the right required minimum distributions from IRAs, 401(k)s and the like, starting the year you reach age 70 ½. There's a huge 50% penalty for being wrong.
  9. Retirement

    A Look At IRA Separate Accounting Rules

    If you are a younger multiple beneficiary, make sure you understand the RMD regulations.
  10. Personal Finance

    5 Ways To Lose Your Retirement Nest Egg

    These common mistakes can put your savings at risk. Find out how to avoid them.
RELATED TERMS
  1. Required Minimum Distribution - RMD

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
  2. Mandatory Distribution

    The amount an individual must withdraw from certain types of ...
  3. Minimum Payment

    The smallest amount of a credit card bill that a credit card ...
  4. Required Minimum Distribution Method

    One of three methods by which early retirees of any age can access ...
  5. Four Percent Rule

    A rule of thumb used to determine the amount of funds to withdraw ...
  6. Anticipated Balance

    The amount that a savings account will have at some future date, ...
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center