If you have a traditional IRA, required minimum distributions (RMDs) begin after you reach age 70-1/2. Thus, if Henry Wells was born in March 1941, he reached 70-1/2 in 2011. If Henry’s neighbor Becky Edwards was born in August 1941, she will be 70-1/2 in 2012.
The required beginning date (RBD) for RMDs is April 1 of the year after you reach 70-1/2. Therefore, Henry’s RBD is April 1, 2012. Becky, who is five months younger, won’t reach her RBD until a year later, on April 1, 2013.
As illustrated, Henry will have to take his first RMD by April 1, 2012. That’s the minimum amount he must withdraw and the latest he can make that withdrawal. You can take out more, sooner, as long as you’re willing to pay the required income tax. However, if you withdraw less than your RMD, you will owe a 50% penalty on the amount you neglect to take out.
Say that Henry will wait and take out only his RMD. He checks his IRA balance on December 31, 2010, and sees that it was $100,000. The RMD that Henry must take by April 1, 2012, is his 2011 RMD. Henry was 70 in 2011 so he goes to age 70 in the IRS’ Uniform Distribution Table and sees that his “distribution period” is 27.4 years.
Therefore, Henry takes his $100,000 IRA balance and divides it by 27.4 to get his RMD: $3,650. If Henry takes only $2,000 from his IRA by next April, he’ll owe an $825 penalty: 50% of the $1,650 shortfall.