Many people know that IRS Publication 590 contains a table showing the amount that must be withdrawn each year — but the amount is based on the account value as of the prior Dec. 31, not on the value at the time the funds are withdrawn.
Account values usually rise, so it’s usually not a problem if you use, say, a May date instead of the previous December’s date, because the account value in May is probably higher. But remember what happened in 2008? That year, the stock market was down sharply; if you took the withdrawal late in the year, your account value likely was far less than it was the previous Dec. 31 and you could have ended up withdrawing too little. The difference would have been subject to the penalty.
These rules are needlessly burdensome. They penalize people who, often because of cognitive decline in their 70s and beyond, handle the complex paperwork incorrectly and end up owing double or triple the amount they should have to pay.