Legislation in 2008 waived the Minimum Required Distributions (MRDs) for 2009 from IRAs and defined contribution plans, including Section 401(k), 403(b), and state-sponsored Section 457 plans. It did not otherwise change MRD rules. Therefore, MRDs are once again required in 2010.
The 2009 waiver has no impact on the 2010 MRDs of the taxpayers who reached 70 1/2 before 2009. These taxpayers compute their 2010 MRDs as they normally would. For taxpayers subject to the five-year distribution rule, 2009 is not counted as one of the five years. This impacts any account using the five-year rule whose account owner died in 2004 through 2008-basically, the five-year period is extended by one year.
Under the normal MRD rules, taxpayers who reached 70 1/2 in 2009 would have had until April 1, 2010, to take their first MRD . But, since that distribution pertained to 2009, it was waived. However, the waiver did not change the individual’s required beginning date. Therefore, the 2010 MRD for a taxpayer who reached 70 1/2 in 2009 must be made no later than December 31, 2010.
Example: MRDs for a taxpayer who reached 70 1/2 in 2009.
Lori reached 70 1/2 in 2009. Her first MRD (for 2009) normally would have been required no later than April 1, 2010. However, since 2009 MRDs were waived, Lori did not take the 2009 distribution. She must take a 2010 MRD by December 31, 2010.
As a reminder, failure to take required distributions will subject you to a 50% penalty. So, it is very important to compute the correct distribution amount and take the 2010 distribution in a timely manner.
Observation: There is no requirement that a taxpayer who mistakenly fails to receive an MRD in one year make a catch-up distribution in the following year. Instead, the amount that must be distributed in the following year is determined without regard to the fact that the taxpayer failed to receive the MRD in the previous tax year.
Beneficiary Designations. This is a good time to review your beneficiary designation forms and IRA documents. At your death, your beneficiary designations and the terms of your IRA will control not only who will receive those assets, but also the availability of various postmortem planning opportunities for your heirs. Given the right set of circumstances, it may be possible for your IRA assets to continue to grow in their tax-advantaged environment for many years.
Please contact us to discuss retirement plan distribution requirements or any other personal or business tax planning or compliance issues.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the Internal Revenue Service Circular 230, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding tax-related penalties or (ii) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.