RMDs – always a messy topic – are usually a year-end problem.

RMDs are Required Minimum Distributions which have to be taken from various retirement accounts once you reach a certain age.  If you were given the opportunity to make tax-deferred savings over your lifetime, it’s time to start paying the piper.  And for most folks, that time begins in the year in which you turn 70-1/2  (no, really – and a half).

Starting in the year in which you turn 70-1/2, and every year after that, you need to take a distribution by the end of that year.  So if you’re 75, you need to take an RMD by December 31.

There’s a one-time exception.  Normally, the RMD must be taken by December 31 — except for your very first RMD which you may take as late as April 1 of the following year.  So if you turned 70-1/2 in 2011, instead of having to take your 2011 RMD by Dec 31, 2011, you get to postpone it until April 1, 2012 (and thus have any taxable income attributed to the RMD come in your 2012 tax year).

So if you turned 70-1/2 in 2011 (meaning you were born between 7/1/1940 and 6/30/1941), and you haven’t already taken your first RMD, you need to do so soon.

The RMD is calculated based on the year-end balance of your IRA from the previous year and your age on your birthday of the year to which the RMD applies.  So a 2011 RMD is based on your age in 2011 and your Dec 31, 2010 balances.

And if you postponed your 2011 RMD to early 2012, you’re going to take TWO RMDs in 2012 – your 2011 one by April 1, and your 2012 RMD by December 31.

Don’t blow this.  The penalty for taking too little of an RMD is 50% of the amount which you had to take but didn’t.  If your RMD was supposed to be $20,000 but you only took $10,000, you’re still going to have to take that second $10,000 (and probably pay income taxes on it) and then you’ll owee $5000 as a penalty.

Some things to help figure this out:

Links to a pair of worksheets for calculating RMDs (they are different if you are married and your spouse is your sole beneficiary and your spouse is more than 10 years younger than you):  <http://www.irs.gov/retirement/participant/article/0,,id=188023,00.html>

And, of course, IRS Pub 590: <http://www.irs.gov/pub/irs-pdf/p590.pdf>

And finally, the IRS FAQ about RMDs: <http://www.irs.gov/retirement/article/0,,id=96989,00.html>