Required Minimum Distributions Are Back

As we all know, the Worker, Retiree, and Employment Recovery Act of 2008 ("WRERA")

temporarily suspended required minimum distributions ("RMDs") in 2009. Thus, many taxpayers chose not to take a RMD in 2009. However, in 2010, the RMD is back, and taxpayers required to take a distribution for 2010 must take it by the end of the year.

Assuming that a taxpayer did not take a RMD in 2009 as a result of WRERA, does the taxpayer have to calculate the 2010 RMD in a different manner? No! Nothing has changed with respect to the way that RMDs are determined.

When RMDs are calculated for a particular year the calculation is based on the December 31st balance from the prior year. Thus, taxpayers required to take a RMD for 2010 will use the value of their retirement account as of December 31st, 2009.

For example assume that Richard White, a 75 year-old retiree, has a retirement account. On December 31st, 2008, his retirement account had a balance of $155,624.35. By December 31st, 2009, as a result of depressed stock holdings, his retirement account balance had decreased to $134,510. After reviewing his 2009 income tax consequences with his accountant, Richard decided that it did not make any sense to take a RMD for 2009, in that any amount that he would have taken would have had to come out of the market - reducing his ability to recover his unrealized losses, and would be subject to excessive income taxation.

For 2010, as a result of Richard being 75 years of age in 2010, and having a RMD divisor of 22.9, he understands that by the year's end he will have to take a RMD of $5,873.79.

Required Minimum Distributions Are Back

By: Dale Krause

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