Minimum required distributions from IRAs must begin by April 1 of the year after the year you turn 70-1/2. A second distribution must be taken by the following December 31 and subsequent distributions must be taken by each December 31. Each year’s distribution is based on the account balance of the preceding December 31 but the first distribution, which can be delayed until April 1, looks back two years to December 31. Thus, a first distribution due April 1, 2002, will be based on the December 31, 2000, account balance.
A 50% penalty applies on any shortfall. Suppose you turned 70 on June 1, 2001, and thus reach age 70-1/2 on December 1, 2001. You must take a minimum amount from your retirement plan by April 1, 2002. Say you had $1 million in your retirement plan on December 31, 2000: that will be the number on which your first distribution must be based. You and your IRA beneficiary might have a joint life expectancy (for this purpose) of 26.2 years so the minimum distribution is 3.81679%. Rounding up to 3.82%, you must take out at least 3.82% from your retirement plan, or $38,200.
