As you are likely well aware, once you reach age 70½ you’re required to begin taking a minimum distribution from your IRA and/or qualified retirement plans. There are several things you need to know about these distributions, so that you don’t make any mistakes. Listed below are some of the more important rules – but keep in mind that these RMD rules are only for the original owner of the account, not for a beneficiary of an inherited account.
Required Minimum Distribution Rules
Special Exception for 2009 – for calendar year 2009, Required Minimum Distribution (RMD) rules are waived, so no distribution is required in 2009. If your 70½ year was during 2008 you are still required to take your distribution for 2008 calendar year before April 1, 2009. If you turn age 70½ during 2009 you will not be required to take a distribution before April 1, 2010, however, your first RMD will be required by December 31, 2010.
Calculation of RMD -
- You must have your account balance from the end of the calendar year prior to the year for which the distribution is being calculated. Any additions or withdrawals after December 31 of the previous year are not included in this balance, even if an addition is for the previous calendar year. Also, any “in flight” rollovers or recharacterizations that effectively would impact the end of year balance are included (or excluded) in the balance as applicable.
- You must learn your distribution period, which can be found in Table III, using your age at the end of the current year (not the previous year).
- Divide the balance from #1 by the distribution period found in #2. This is your RMD for the current year.
- For each subsequent year, go back through #1 for a new balance at the end of the prior year, then go to the table from #2 to get a new distribution period, and do the math.
More Than Minimum – for any year in which you withdraw more than the RMD amount you are NOT allowed a credit against future year RMD. The result is that your balance at the end of the current year would be less, so future RMD would be resultingly a little less, but not by the amount of extra you received.
No Rollovers or Conversions of RMD Amounts – Although you’re allowed to rollover or convert IRA funds after age 70½, you can not rollover or convert the amount attributable to your RMD for the year.
Multiple Accounts – For the purposes of calculating RMD, the IRS considers all traditional IRAs owned by one individual as one aggregate IRA. This means that you can determine your RMD by adding together the balances of all your trad IRA accounts at the end of the prior year, and then taking your RMD from any one account (or as many accounts as you wish) as long as it totals at least the RMD for that year. Other qualified retirement plans such as a 401(k) must be treated separately – that is, RMD must be calculated only on that account and distribution received from only that account.
Multiple Payments – You are allowed to take from as little as one to as many payments as you wish from your IRAs, as long as they add up to the RMD for the year.
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I can learn from you, you can learn from me - please leave your comments and links!Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 25 years of experience in the industry. Read more from this author
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