Integrated Financial Partners – Time to Get Back to RMDs

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by on November 9, 2010 at 1:45 am

Time to Get Back to RMDs

If you took advantage of the temporary reprieve that allowed you to skip required minimum distributions from traditional IRAs and employer-sponsored retirement plans in 2009, be aware that no such exemption exists for the 2010 tax year. The deadline for taking required minimum distributions for 2010 is December 31, 2010.

Even if you didn’t take advantage of the opportunity to skip your RMD in 2009, you may want to keep reading. Failing to take the appropriate minimum distribution from tax-deferred retirement plans carries one of the highest tax penalties in the tax code.

What Is an RMD?

Tax-deferred retirement vehicles allow participants to defer paying current taxes on their contributions and earnings until they begin taking withdrawals, generally in retirement. To ensure that investors don’t postpone their income taxes indefinitely, the tax code stipulates that they must begin taking RMDs from traditional IRAs and qualified retirement plans after reaching age 70½ or face a tax penalty equal to 50% of the amount that should have been withdrawn.

The amount that must be withdrawn in 2010 is calculated based on the account owner’s life expectancy (generally based on an IRS uniform lifetime table) and the account balance(s) on December 31, 2009.

One Time Only

Congress suspended RMDs in 2009 to give investors time to recover from losses they may have experienced in 2008. However, Congress did not extend the suspension of RMDs beyond the 2009 calendar year.

Because RMDs are derived from complex calculations and the tax penalty for mistakes is so high, it may be a good idea to consult a tax professional before taking required minimum distributions. In the meantime, use the table to help calculate the date when RMDs must begin.

via Integrated Financial Partners – Time to Get Back to RMDs : Newsletter: Time to Get Back to RMDs.

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