Should I start taking my RMD based on the amount in my account when I turn 70.5?

By Denise Appleby AAA
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 If you withdraw $12,000 during the year, the extra $2,000 cannot be used toward the next year's RMD, as only amounts withdrawn during the year can be counted toward your RMD for the year.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you withdraw next year is in excess of this year's RMD, that amount can be counted toward next year's RMD, because it's withdrawn during next year.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if you withdraw $12,000 in January of next year, the extra $2,000 can be used toward next year's RMD because it's withdrawn during next year.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. How are payments calculated on a Canadian Pension Plan (CPP)?

    Learn what factors are considered when calculating your Canada Pension Plan retirement benefits, and discover how to get ...
  2. Are Social Security benefits affected by unemployment benefits?

    Find out if Social Security benefits are affected by unemployment benefits, and if so, how much this benefit can be reduced ...
  3. What are the rules and restrictions on a Spousal IRA?

    Learn about the rules pertaining to spousal individual retirement account contribution and income limits. Find different ...
  4. Can I get both military and Social Security benefits?

    Learn how it's possible to receive both Social Security benefits and a military pension in retirement, and how retirement ...
RELATED TERMS
  1. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
  2. Gold IRA

    Definition of Gold IRA
  3. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  4. Death Master File (DMF)

    Also known as Social Security Death Index. A list of people whose ...
  5. Leveraged Benefits

    The use – by a business owner or professional practitioner – ...
  6. Peri-Retirement

    A term for the period of time leading up to actual retirement. ...
Related Articles
  1. How Does A Reverse Mortgage Work?
    Retirement

    How Does A Reverse Mortgage Work?

  2. 5 Key Factors Your Financial Plan May ...
    Retirement

    5 Key Factors Your Financial Plan May ...

  3. The Right Place To Retire
    Retirement

    The Right Place To Retire

  4. Closing In On Retirement? Read These ...
    Investing Basics

    Closing In On Retirement? Read These ...

  5. Self-Directed IRA: The Right Move For ...
    Retirement

    Self-Directed IRA: The Right Move For ...

Trading Center