(Note that if you wait until April 1 to take your initial distribution for the previous year, you'll still be required to take a distribution by Dec. 31 for the current year, which results in a double tax bill.)
Even if you began receiving distributions before age 70 1/2, you must calculate and receive the RMD by the required beginning date.
Determining how much you need to take is not necessarily difficult, but it does demand accuracy.
Failure to take those distributions, or take a large enough amount, results in a 50 percent excise tax on the amount not distributed.
"Some people are not even aware that they have to begin distributions at 70 1/2 and the penalty is very severe," says Bill Bengen, a Certified Financial Planner and author of "Conserving Client Portfolios During Retirement."
Two steps to your RMD
- Determine the combined balance in your qualified tax-deferred plans as of Dec. 31 of the previous year.
- Divide that balance by the applicable distribution period provided by the IRS.
Doing the math
To figure your RMD, determine the combined balance in your qualified tax-deferred plans (IRA, 401(k), etc.) as of Dec. 31 of the previous year.
Next, divide that balance by the applicable distribution period provided by the IRS.
The IRS has three tables within Publication 590 to help you determine your distribution period.
Table I is for use by the traditional IRA's beneficiaries and surviving spouse.
Table II is for IRA owners whose spouse is the sole designated beneficiary and more than 10 years younger.
Table III, the "Uniform Lifetime" table, is the most commonly used. Use it if you are either unmarried, or you are the IRA owner and your spouse is not your sole designated beneficiary and not more than 10 years younger than you.