Here’s What You Need to Know For the 2010 Required Minimum Distribution

Required minimum distributions, often referred to as RMDs, are amounts the federal government requires you to withdraw annually from traditional IRAs and employer-sponsored retirement plans after you reach age 70½ (or, in some cases, after you retire). RMDs are also required if you inherit an IRA (traditional or Roth) or employer plan account. You can always withdraw more than the minimum amount from your IRA or plan in any year, but if you withdraw less than the required minimum, you’ll be subject to a federal penalty tax equal to 50% of the shortfall.

In response to deteriorating economic conditions in 2008, Congress (as part of the Worker, Retiree, and Employer Recovery Act of 2008, or “WRERA”) waived RMDs from IRAs and defined contribution employer plans for the 2009 calendar year. This allowed individuals to avoid having to deplete retirement plan assets while the value of those assets was suddenly depressed. But RMDs are back for 2010. Here’s how the rules apply.

IRA Owners and Employer Plan Participants

If you turned 70½ before 2009, your RMD for the 2009 calendar year, which was due by December 31, 2009, was waived. You must now resume taking RMDs. Your next RMD (based on your December 31, 2009, account balance) must be taken no later than December 31, 2010.

If you turned 70½ in 2009, your first RMD (for the 2009 calendar year) was due by April 1, 2010. This RMD was waived. You must now take your first RMD (for the 2010 calendar year, based on your account value as of December 31, 2009) no later than December 31, 2010. You’ll need to take your second RMD from the account (for the 2011 calendar year) no later than December 31, 2011.

If you turned 70½ in 2010, your RMDs are not impacted by the 2009 waiver at all. Your first RMD (for the 2010 calendar year) is due by April 1, 2011, and is based on the value of your account on December 31, 2009. You’ll need to take a second RMD from the account no later than December 31, 2011.

Inherited Accounts

In general, if you inherit an IRA (traditional or Roth) or employer-plan account, you must begin taking RMDs over your life expectancy (“life expectancy” rule) starting with the year following the year of the account owner’s death. Alternatively, you may elect, or your plan may require, that you withdraw the entire account by December 31 of the calendar year containing the fifth anniversary of the account owner’s death (“five-year” rule).

  • Per the WRERA, if you inherited an IRA or employer account, and you were using the life expectancy payout rule, then your RMD for the 2009 calendar year was waived. You must take an RMD for the 2010 calendar year no later than December 31, 2010.
  • If you inherited an IRA or employer account, and you were using the five-year rule for RMDs, you ignore 2009 when determining when your five-year period ends. So, for example, if your original five-year deadline was December 31, 2009, you ignore 2009 and you now have until December 31, 2010, to complete withdrawals from the account. Similarly, if your original five-year deadline was December 31, 2013, your new deadline, ignoring 2009, is December 31, 2014.
  • If you inherited an employer plan account, you may have been given the right to elect whether to use the five-year rule or the lifetime expectancy payout rule for taking RMDs. This election is generally required no later than December 31 of the year following the year of the account owner’s death. Per IRS Notice 2009-82, if your deadline for making the election was December 31, 2009, you now have until December 31, 2010, to make that election.
  • If you inherited an employer account from someone other than your spouse, and the five-year rule applies to your benefit, you generally have until December 31 of the year following the year of the account owner’s death to make a direct rollover of the account to an inherited IRA, and use the lifetime expectancy payout rule for distributions from the IRA. If the account owner died in 2008, you generally would have needed to complete your rollover by December 31, 2009. Per Notice 2009-82, you have until December 31, 2010, to complete the rollover.

About the author

Jean Keener, CRPC®, CFDP®

3 Comments

Leave a comment
  • I was 70&1/2 in mid 2010 and am required by law to make a RMD from my 401k plan. if I make the application in Dec of 2010 but do not recieve my RMD until early 2011 will I be penalized and will the amount recieved be taxable on the 2010 or 2011 tax Year ? Thanks, Ron

  • David,

    Thanks for your question. You can take your first RMD anytime during the year in which you turn 70 1/2, so it’s fine to take it before your birthday as long as it’s during the same calendar year.

    Here’s the quote from IRS Pub 590:

    “… any amount distributed in your 70½ year will be credited toward the amount that must be distributed by April 1 of the following year.”

    Full information is available at http://www.irs.gov/publications/p590/

    All the best,

    Jean Keener
    Keener Financial Planning
    http://www.KeenerFinancial.com

  • Above you state that “the federal government requires you to withdraw annually from traditional IRAs and employer-sponsored retirement plans AFTER you reach age 70½”. Can you take a RMD prior to your birthdate in the year in which you attain age 70 1/2?

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Copyright 2014 FiGuide.com   About Us   Contact Us   Our Advisors       Login