Required minimum distributions (RMDs) from traditional IRAs were suspended only for calendar year 2009. Congress did not extend the suspension, and doesn’t appear to have any interest in extending it. You must return to pre-2009 rules and take RMDs in 2010.
The first RMD is due by April 1 of the year after you turn age 70½. Subsequent RMDs are due by Dec. 31 of each calendar year. But keep in mind that the first RMD is for the year you turned age 70½, though it doesn’t have to be taken until April 1 of the following year. When you don’t take the first distribution until the deadline, you take two RMDs in the same year: The distribution for the year you turned 70½, and the distribution for the following year. To avoid bunching two RMDs in one year and perhaps being pushed into a higher tax bracket, it is better in many cases to take the first distribution by Dec. 31 of the year you turn 70½.
The RMD calculation is simple. Begin with the IRA balance as of Dec. 31 of the previous year. For 2010 RMDs, use the IRA balance on Dec. 31, 2009. Then, look up your life expectancy in the appropriate IRS table. Most people use the Uniform Lifetime Table. The Joint Life Table is used by an account owner whose sole primary beneficiary is a spouse who is more than 10 years younger than the owner. The Single Life Table is for owners of inherited IRAs. The tables are in IRS Publication 590, which is available free from the IRS and on its web site.
Divide your life expectancy into the Dec. 31 IRA balance. The result is your RMD for the year.
You can take the RMD on any schedule you want as long at least that amount is distributed by Dec. 31. Remember, you always can take more than the RMD.
When you have multiple IRAs, the RMD is computed for the IRAs in aggregate (add all the IRA balances and divide the total by the life expectancy). You take the RMD from the IRAs in any allocation you want. You may take the entire amount from one IRA, take equal amounts from each IRA, or any other proportion you prefer.
RMDs are required for almost all qualified retirement plans after age 70½. There are some differences for non-IRA account RMDs. For example, multiple employer retirement plan accounts are not aggregated. You compute and take the RMD separately for each account.
Roth IRAs don’t have RMDs for original owners, but beneficiaries who inherited Roth IRAs must take RMDs over their life expectancies. The owner of a traditional IRA can’t avoid an RMD by converting a traditional IRA to a Roth. The RMD for the conversion year must be taken from the traditional IRA before the conversion.
RMDs don’t have to be cash. You can distribute stock, mutual funds, or other property held by the IRA.
Don’t let all the confusion in Washington cause you to pay a big penalty. RMDs are back for 2010, and you can’t count on Congress suspending them again.
February 2010. RW