Required Minimum Distributions in 2010

by Evan


As part of the economic recovery the federal government suspended required minimum distributions in 2009, but RMDs are back for tax year 2010 and forward so a Required Minimum Distribution primer is definitely needed.  While there are actions you can take if you forget your RMD it is much easier to be proactive and actually take your RMD!

Calculating Required Minimum Distributions

First we have to determine if the person reached their Required Beginning Date

Required Beginning Date

From Investopedia,

This date occurs on April 1 following the calendar year the participant reaches age 70.5. Some qualified plans may allow participants who have reached this age to delay the RBD until April 1 of the year following the year they retire.

I know it isn’t important for this discussion, but I think Investopedia fails to really emphasize that if you are still working and if your 401(k) plan allows it, you don’t have to take required minimum distributions.  But I digress.

Required Beginning Date Examples:

My favorite magazine ever Trusts and Estates (subscription required and it costs $35/issue!) provided some Required Beginning Date Scenarios:

If the owner didn’t reach the required beginning date (RBD)

Some IRA owners weren’t yet required to take distributions by 2009 because they hadn’t reached their RBD. That date occurs on April 1 of the year after the owner attains age 70½. By that date, the owner must take an RMD for the year in which he attained age 70½. A second RMD must be taken by Dec. 31 of the year of the RBD.

The moratorium didn’t affect the determination of the RBD.3 That means an individual who attained age 70½ during 2008 still had to withdraw a 2008 RMD by April 1, 2009, but wasn’t required to withdraw a 2009 distribution by Dec. 31, 2009.

If the IRA owner turned age 70½ during 2009

That owner wasn’t required to take a distribution by April 1, 2010. But he must take a 2010 RMD by Dec. 31, 2010.

If the IRA owner turned age 70½ during 2010

What if the IRA owner turns age 70½ between Jan. 1, 2010 and Dec. 31, 2010? That owner’s RBD is April 1, 2011. The owner must take the 2010 RMD any time between Jan. 1, 2010 and April 1, 2011. In addition, the owner must take a 2011 RMD by Dec. 31, 2011.

Surviving spouse of deceased IRA owner

The RBD for a surviving spouse of a deceased IRA owner who died before reaching his RBD is Dec. 31 of the year in which the decedent would have attained age 70½. If that year was 2009, the RBD wasn’t affected, but the spouse wasn’t required to take an RMD. The spouse must take an RMD starting in 2010.

Applying the Correct Divisor

There are two main tables that come into play, the “Uniform Lifetime” table or the “Joint Life and Last Survivor Expectancy” table, you would use the latter if you have a spouse whose birthday is more than 10 years older than the IRA owner.  As such, most people use the former.  Both tables are built right into the appendix of IRS Publication 590.  Once you check out the table you are going to divide the value of the account on Dec. 31, 2009 by the applicable divisor from the table.

I don’t think many of my readers are 70.5+ years old, but understanding how an RMD calculator works brings value! Do you have any experience with RMDs?

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LifeAndMyFinances December 9, 2010 - 7:55 am

It’s really too bad that some people are forced to take money out of their fund at a certain age. Granted, most probably need that money, but for those that don’t, it must be a big hassle to find another investment. Ha, I guess there could be worse problems though huh… 🙂

Evan December 9, 2010 - 3:29 pm

You’d be suprised how many clients we have here that are in that situation! There are some cool advanced stuff you can do to benefit the family:

Keepmydollar December 24, 2010 - 11:47 am

Don’t forget about an inherited IRA. If you are the child of someone who passes and inherits their IRA or 401K you must begin taking RMD the year after the death. Then you have multiple options you can either liquidate the whole IRA over 5 years or you can take the RMD over your lifetime.


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