Ask the Expert: Take minimums to the max

When should you start taking required minimum distributions (RMDs) from IRAs? My friend will be 701/2 in September. I thought RMDs must start the year after you turn 701/2 -- in his case, 2012. But his brokerage firm sent him a notice saying his first distribution should be taken in 2011.

You're right about the legal deadline. But it usually doesn't make financial sense to wait as long as the law allows before taking your first required IRA distribution.

The deadline for taking the first RMD is April 1 of the year after you turn 701/2. From then on, the annual deadline is Dec. 31. But your RMD is taxable income for the calendar year in which you take it. If your friend waits until 2012 to take his first RMD, he'll have to take two distributions that year -- and that might push him into a higher 2012 tax bracket. Hence, his broker's advice to take the first RMD in 2011.

People are often confused about how to calculate the RMD. For tax purposes, you have just one tax-deferred IRA even if it's in multiple accounts. Your RMD is based on the total balance of all your IRAs -- not including Roth IRAs -- on Dec. 31 of the previous year. (You can take the withdrawal from any of them.) Find your life expectancy factor in the Uniform Lifetime Table in IRS Publication 520, using the age you'll be on your birthday in the distribution year. Then divide your IRA balance by your life expectancy factor. If your total IRA balance is $100,000, for example, and your life expectancy factor is 27, your RMD is $3,704.

The bottom line By taking your first required IRA distribution earlier, you avoid having to take two taxable distributions in the same year.

Websites with more information 1.usa.gov/ii7M6b and bit.ly/gqkC46