Don’t mess up your IRA (or 401(k) distribution

As most people know, distribution from an IRA or 401(k) must begin by age 70-1/2, actually by the April 1 of the year following attainment of age 70-1/2. There are significant penalties if the required minimum distribution is not made on time.

What many people may not know is that if you delay your required minimum distribution until that April 1, and you elect to have a minimum amount distributed each year you must, for subsequent years, receive the RMDs by December 31 of each year. This means you will be required to take a second RMD in the same year as your initial distribution, which counts as the second year for RMDs.

For example, let’s say you will be 70-1/2 in 2013. You must make a distribution for 2013 and the next RMD in 2014. However, by delaying the 2013 distribution until April 2014, you still must make the RMD for 2014 as well.

Taking two RMDs in one year may not be an issue for you.

However, depending on your total income those two distributions may mean you pay more in taxes than you would with only one distribution on a calendar year. Remember, if you do not take that second distribution, you will be subject to penalties.

You might want to consider making your first RMD In the year you attain age 70-1/2 rather than the following year if paying a higher tax rate is in your future.

Bottom line is that if you delayed your required RMD for 2011 until April 1, 2012, your next RMD must be made by December 31, 2012.

Always check with a qualified tax advisor in advance, you are no match for Uncle Sam.