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 If you withdraw $12,000 during the year, the extra $2,000 cannot be used toward the next year's RMD, as only amounts withdrawn during the year can be counted toward your RMD for the year.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you withdraw next year is in excess of this year's RMD, that amount can be counted toward next year's RMD, because it's withdrawn during next year.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if you withdraw $12,000 in January of next year, the extra $2,000 can be used toward next year's RMD because it's withdrawn during next year.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. Can I borrow from my annuity to put a down payment on a house?

    You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. ... Read Full Answer >>
  2. What are the main kinds of annuities?

    There are two broad categories of annuity: fixed and variable. These categories refer to the manner in which the investment ... Read Full Answer >>
  3. What are the risks of rolling my 401(k) into an annuity?

    Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>
  4. How do I get out of my annuity and transfer to a new one?

    If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>
  5. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  6. What are the biggest disadvantages of annuities?

    Annuities can sound enticing when pitched by a salesperson who, not coincidentally, makes huge commissions selling them. ... Read Full Answer >>
Related Articles
  1. Investing

    Baby Boomer Philanthropy Shifts Wealth Adviser Focus

    Wealth advisers who integrate philanthropy and finance planning can stand out with baby boomer clients.
  2. Retirement

    The 5 Best Retirement Communities in Dallas, Texas

    Discover why the Dallas/Fort Worth area of Texas is a popular retirement destination, and five of the best retirement communities in the area.
  3. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  4. Professionals

    How to Protect Retirement and Help Adult Kids

    Parents can both protect their retirement money and help their adult kids. Here's how.
  5. Retirement

    10 Ways to Save Your Retirement: It's Not Too Late

    It's not too late to start saving for your retirement, even if you took longer to start thinking about it and doing something about it.
  6. Investing

    Why Is Financial Literacy and Education so Important?

    Financial literacy is the confluence of financial, credit and debt knowledge that is necessary to make the financial decisions that are integral to our everyday lives.
  7. Investing

    10 Ways to Effectively Save for the Future

    Savings is as crucial as ever, as we deal with life changes and our needs for the future. Here are some essential steps to get started, now.
  8. Mutual Funds & ETFs

    Mutual Funds Millennials Should Avoid

    Find out what kinds of mutual funds are unsuitable for millennial investors, especially when included in millennial retirement accounts.
  9. Retirement

    This Is How You Could Live in Costa Rica for $1,000 a Month

    Explore the cost of living in Costa Rica, and learn how you could sustain a nice middle-class lifestyle for yourself on about $1,000 a month.
  10. Professionals

    How to Protect Your Portfolio from a Market Crash

    Although market crashes are usually bad news for your portfolio, there are several ways to minimize losses or even profit outright from market movement.
  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
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!