Required Minimum Distributions

RMD For Traditional IRAs

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Apr 2, 2009 Swapna Antony

RMD is the minimum withdrawal that you must make from your traditional IRA account in an year. The condition for minimum distribution has been waived for the year 2009.

The owner of a traditional IRA account is required to start withdrawing from his/her IRA account once he/she reaches the age of 701/2. Required Minimum Distribution or RMD is the minimum amount that must be distributed each year from the traditional IRA account. If there are no distributions or if the distribution is less than the Required Minimum Distribution, the account holder must pay a 50% excise tax on the amount not distributed.

Temporary Waiver for 2009

For the year 2009, the requirement to take the yearly minimum distribution from IRA has been waived. This waiver is applicable both to participants and beneficiaries. In the case of beneficiaries receiving distributions over a 5-year period, they can now waive the distribution for 2009,making the distributions over a six year period rather than a five year period (Source:http://www.irs.gov/pub/irs-pdf/p590.pdf).

If the account holder has already received a distribution in 2009 that would otherwise be a required minimum distribution, he/she can roll over that amount into another IRA or eligible retirement plan within 60 days of the distribution.

RMD For Owner of the Account

The owner of a traditional IRA account is required to start taking distributions from his/her account by April 1 of the year following the year in which he/she reaches the age 701/2. However if an IRA owner dies after reaching age 701/2, but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date.

RMD For the Beneficiary of the Account

When a IRA owner dies before RMDs have begun, different RMD rules apply to the beneficiary of the IRA. Generally, the entire amount of the owner’s benefit must be distributed to the beneficiary who is an individual either (1) within 5 years of the owner’s death, or (2) over the life of the beneficiary starting no later than one year following the owner’s death.

Calculation of RMD

RMD is calculated for each account by dividing the prior December 31st balance of that IRA by a life expectancy factor. See Publication 590 by IRS for information regarding the calculation of the life expectancy. The IRA account owner is responsible for correctly calculating the amount of the RMD.

Penalty for Failure to Take RMD

If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%.

The IRA custodian or a Financial Advisor can help in calculating the RMD, but ultimately it is the account holder's responsibility and it is essential that he correctly understands the rules regarding the Required Minimum Distributions.

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