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Walter & Shuffain, P.C.

Certified Public Accountants & Business Advisors

Member of the Alliott Group

June 2010 Tax Tip:
Required Minimum Distribution (RMD)

Required Minimum Distribution rules are back for 2010 after Congress gave retirement account owners and beneficiaries a one year reprieve from the required annual withdrawals based on the meltdown of the Stock Market in 2008. Thus for 2010, all owners of traditional IRAs (including SEP and SIMPLE IRAs) and participants in qualified retirement plans upon reaching the age of 70 ½ are subjected to the RMD rules that mandate taking annual withdrawals of a specified amount and paying the related income tax.

Failure to withdraw at least the specified amount for your retirement accounts will end up costing you a 50% penalty tax based on the difference between the amount that one should have withdrew and the amount that was actually withdrawn.

Here are the rules for when you need to begin taking your withdrawals based on your age:

  1. Owner turned 70 ½ IN 2009: initial RMD will be for calendar-year 2010 and it must be withdrawn by December 31, 2010 without exception. The RMD is calculated by dividing the applicable retirement account balance as of December 31, 2009 by a joint life expectancy divisor based on the owner's age as of December 31, 2010. However, if the owner's spouse is the sole beneficiary and more than ten years younger than the owner, a joint and last survivor life expectancy divisor can be used.
  2. Owner turned 70 ½ BEFORE 2009: 2010 RMD must be withdrawn by December 31, 2010 and is calculated the same way as #1 above.
  3. Owner turns 70 ½ IN 2010: owner must take their initial RMD for 2010 no later than April 1, 2011 and it is calculated the same way as #1 above. Please note: higher-income clients may want to take their initial RMD before the end of the year to avoid having two RMD in 2011 (could possibly put you into a higher tax bracket) and to get this year's more favorable federal income tax structure (2011 might not be so taxpayer-friendly).

In addition, one can be a beneficiary that inherits an interest in an IRA. There are a special set of annual RMD rules for this instance - please contact the office to review your individual situation.

Questions?

If you would like more detailed information, please do not hesitate to contact us.