Most people have to take minimum required distributions from retirement plans after they reach age 70 1/2. Suppose, for example, you turn 70 1/2 in the first half of 2002. Later in 2002, you’ll reach your 71st birthday.
Your first distribution must be taken by April 1 of the following year, 2003. Because you turned 71 in 2002, you’d use the joint life expectancy for a 71-year-old. For your second required distribution, due by December 31, 2003, you’d use the joint life expectancy for a 72-year-old. Each following year, you’d have to take another distribution.
On the other hand, suppose you turn 70 1/2 in the second half of 2002, so you have your 70th birthday in 2002. You still have to take two distributions in 2003, by April 1 and December 31. Now, though, your required minimum distributions will use the life expectancies of a 70-year-old and a 71-year-old, respectively. In both of these examples, you’re taking two distributions in 2003. If you take two distributions the first year, the added income may push you into a higher tax bracket. Taking one distribution in 2002 and one in 2003 might result in a lower overall tax bill.
