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 If you withdraw $12,000 during the year, the extra $2,000 cannot be used toward the next year's RMD, as only amounts withdrawn during the year can be counted toward your RMD for the year.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withdraw next year is in excess of this year's RMD, that amount can be counted toward next year's RMD, because it's withdrawn during next year.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if you withdraw $12,000 in January of next year, the extra $2,000 can be used toward next year's RMD because it's withdrawn during next year.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

  1. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  2. Who can make catch-up contributions?

    Most common retirement plans such as 401(k) and 403(b) plans, as well as individual retirement accounts (IRAs) allow you ... Read Full Answer >>
  3. Can you have both a 401(k) and an IRA?

    Investors can have both a 401(k) and an individual retirement account (IRA) at the same time, and it is quite common to have ... Read Full Answer >>
  4. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  5. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>
  6. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
Related Articles
  1. Retirement

    Two Heads Are Better Than One With Your Finances

    We discuss the advantages of seeking professional help when it comes to managing our retirement account.
  2. Retirement

    5 Secrets You Didn’t Know About Traditional IRAs

    A traditional IRA gives you complete control over your contributions, and offers a nice complement to an employer-provided savings plan.
  3. Retirement

    Using Your IRA to Invest in Property

    Explain how to use an IRA account to buy investment property.
  4. Retirement

    How a 401(k) Works After Retirement

    Find out how your 401(k) works after you retire, including when you are required to begin taking distributions and the tax impact of your withdrawals.
  5. Retirement

    Read This Before You Retire in the Philippines

    The Philippines has a warm climate, a low cost of living and plenty of people who speak English. What to do next if you think you want to retire there.
  6. Retirement

    4 Books Every Retiree Should Read

    Learn more about the current financial situations retirees are facing and discover four books that every prospective and current retiree must read.
  7. Retirement

    Are Fees Depleting Your Retirement Savings?  

    Each retirement account will have a fee associated with it. The key is to lower these fees as much as possible to maximize your return.
  8. Retirement

    Retirement Tips for Doctors

    Learn five tips that can help physicians get back on schedule in terms of making financial preparations they need to retire.
  9. Investing Basics

    Do You Need More Than One Financial Advisor?

    Using more than one financial advisor for money management has its pros and cons.
  10. Insurance

    What's The Difference Between Medicare And Medicaid?

    One program is for the poor; the other is for the elderly. Learn which is which.
  1. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
  2. See-Through Trust

    A trust that is treated as the beneficiary of an individual retirement ...
  3. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  4. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  5. Self Invested Personal Pension (SIPP)

    A tax-efficient retirement savings account available in Great ...
  6. Senior Move Manager

    Senior move managers (SMMs) help seniors downsize and relocate ...

You May Also Like

Trading Center