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Time to Draw Down Your IRA?

Dear Dr. Don,
I am now 73 years old. As I understand it, I must take a required minimum distribution (RMD) by the end of 2011 equal to the value of my individual retirement accounts as of this same year (2011). How can I know what my IRAs will be worth by the end of 2011 before Dec. 31 arrives to know how much I must take? Or is there something that I don't understand?
-- Larry Latest

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Dear Larry,
Your 2011 required minimum distribution, or RMD, is based on the account balance(s) at the end of 2010, not 2011. Here's how the Internal Revenue Service presents it in Publication 590:

Figure your required minimum distribution for each year by dividing the IRA account balance (defined next) as of the close of business on Dec. 31 of the preceding year by the applicable distribution period or life expectancy."

RMDs from IRAs start in the year you turn 70½, although account owners were allowed to skip the RMD in the 2009 tax year. Your letter reads like you didn't take a required minimum distribution in the 2010 tax year. You wouldn't have this confusion about the 2011 distribution if you had taken a 2010 distribution.

Also from Publication 590, "Generally, you must begin receiving (IRA) distributions by April 1 of the year following the year in which you reach age 70½. The required minimum distribution for any year after the year in which you reach age 70½ must be made by Dec. 31 of that later year."

The Bankrate feature, "Meeting IRA withdrawal rules," provides a nice primer on the topic. Bankrate's required minimum distribution calculator will help you calculate this year's RMD.

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If you didn't take a RMD in 2010, read through the section of Publication 590 that deals with "excess accumulations (insufficient distributions)," especially the "request to waive the tax" excerpt presented here:

If the excess accumulation is due to reasonable error, and you have taken, or are taking, steps to remedy the insufficient (IRA) distribution, you can request that the tax be waived. If you believe you qualify for this relief, attach a statement of explanation and complete Form 5329 as instructed under waiver of tax in the Instructions for Form 5329.

You may also want to discuss this with a tax professional.

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