Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Are IRA minimum distributions required this year?

By Walter Updegrave, senior editor

(Money Magazine) -- Question: Are minimum distributions from IRA accounts required in 2010? And, if so, what balance do I use to calculate the amount that I have to withdraw? -- M. Strange, Falls Church, Virginia

Answer: Apparently, you're not the only one who's fuzzy on the topic of RMDs (required minimum distributions) or, as some prefer to call them, MRDs (minimum required distributions).


A recent Fidelity Investments survey found that almost one in five people 70 or older who own an IRA were weren't aware that RMDs are back in place this year after being suspended in 2009 to give retirement accounts battered during the financial crisis a chance to recover.

Fido's poll also found that more than one in five IRA owners who are required to take an RMD this year hadn't done so as of November.

So let me be clear absolutely clear about the answer to the first part of your question: They're baaack! Whether you call them RMDs, MRDs or those !!#@*!! withdrawals you have to take whether you want to or not, the government's rules requiring minimum withdrawals from retirement accounts have definitely been reinstated.

Which means if you're 70 1/2 or older and you have an IRA, you must withdraw the annual minimum for 2010 by the end of December, if you haven't already. You have a bit more flexibility if you just turned 70 1/2 this year.

In that case, you can put off taking your first RMD until April 1st of 2011. If you do that, though, you'll still have to take an RMD for next year by the end of 2011. (And by the way, if you turned 70 1/2 in 2009, and are thinking you can postpone taking your RMD until April 2011 on the theory that since RMDs for 2009 were suspended this is your first RMD, forget it. You've got to take the minimum amount by the end of this year.)

Not that you would ever do it, but don't figure that this is some nitpicky little government rule you can afford to ignore.

Why? Well, if don't take at least the required amount, a punitive 50% penalty on any amount you should have taken but didn't kicks in.

So, for example, if the rules require that you withdraw, say, $5,000 from your IRA by the end of this year and you withdraw only $2,000 by that deadline, you would owe 50% of the $3,000 you failed to pull out, or $1,500.

Fail to withdraw anything, and the penalty would total $2,500. Ouch! If you don't take your RMD, you do have the option of asking the IRS to cut you some slack.

And, indeed, in a list of FAQs about RMDs, our bighearted tax collection agency says "the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall."

But do you really want to be in the position of begging the IRS for mercy? You're much better off just making sure you take the distribution on time.

As to your question about calculating the required withdrawal, here's the skinny: You use your account balance as of the end of the year prior to the year for which you must take the RMD, and then divide that amount by the life expectancy factor for your age, which you can find by going to this IRS worksheet.

So, for example, if you're 73 and your IRA had a balance of $100,000 on December 31, 2009, you would divide that balance by 24.7, meaning you would have to withdraw at least $4,049 to meet the requirement for 2010.

Or you could take the easy way out and go to an RMD calculator, which you can find on the sites of many large investment firms, including Fidelity and Vanguard, not to mention the Financial Industry Regulatory Authority's site.

If you've got more than one IRA, you can calculate the RMDs for each one separately. But you can then pull the total amount required from one account or spread it around any way you wish.

So, for example, if in addition to the $100,000 IRA above, our hypothetical 73-year-old had another IRA with a $50,000 balance on December 31, 2009 and another with a $20,000 balance, he would face an RMD of $4,049 for the $100,000 account, $2,024 for the $50,000 account and $810 for the $20,000 account for a total of $6,883, which could be pulled from any one account or any combination of accounts.

One caveat: If you're converting a traditional IRA or 401(k) to a Roth the year you must take an RMD, you should know that IRS regs effectively say that you must take your RMD before doing the conversion.

Otherwise, you could run afoul of IRS rules for excess contributions to a Roth IRA. For details on how this little trap works -- as well as info about how to extricate yourself if you've fallen into it -- check out this page at Fairmark.com.

By the way, RMD rules also apply to 401(k)s, although If you're 70 ½ or older and still working, you don't have to draw money from a 401(k) or similar plan with your current employer, assuming your plan allows you this latitude and you don't own 5% or more of the company.

Also, unlike with IRAs, if you have more than one 401(k), you must withdraw the RMD from each one separately. For more on the rules for RMDs and 401(k)s, click here.

Even if you're not 70 ½ or older, you may still be required to take RMDs if you inherited an IRA or 401(k).

If you have a Roth IRA, on the other hand, you're not required to take RMDs whatever your age, although if you've inherited a Roth you may face them. You can get the lowdown on taking distributions from inherited retirement accounts by checking out this guide.

Finally, some people have enough other income so that they don't need or want to pull money from IRAs or other retirement accounts. But unless you want to incur that 50% penalty, you must take them nonetheless.

For choices of what to do if you're in the fortunate situation of not having to dip into your retirement accounts for current income, you can click here. Be aware, though, that one strategy some people see as a way around RMDs -- converting traditional IRA or 401(k) assets to a Roth IRA -- can be tricky.

Aside from the fact that a Roth conversion may not be such a great deal if you won't face a lower tax rate after converting, the extra taxable income created by the pre-tax dollars you convert could make up to 85% your Social Security benefits taxable the year of the conversion, not to mention possibly boost your Medicare Part B premiums.

For more on these issues, click here and here. The bottom line, though, is that if you have any type of retirement account from which you must make an RMD, I suggest you take care of it ASAP.

If you let it go to the last minute, you might forget about it or, just as bad, run into some technical glitch -- like your online instructions to your fund company disappearing into the ether -- that prevents the money from being withdrawn from your account by the deadline.

Who knows, maybe the IRS is the model of understanding and compassion in such cases. But why test the extent of its magnanimity? To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed3.83%3.81%
15 yr fixed2.88%2.89%
5/1 ARM3.09%2.99%
30 yr refi3.92%3.91%
15 yr refi2.97%2.99%
Rate data provided
by Bankrate.com
View rates in your area
Find personalized rates:
Index Last Change % Change
Dow 17,050.75 138.46 0.82%
Nasdaq 4,810.79 19.64 0.41%
S&P 500 2,013.43 17.60 0.88%
Treasuries 2.11 0.05 2.23%
Data as of 11:18pm ET
Company Price Change % Change
Bank of America Corp... 15.75 0.00 0.00%
EMC Corp 27.18 1.22 4.70%
Apple Inc 109.50 -1.28 -1.16%
Freeport-McMoRan Inc... 13.46 0.45 3.46%
General Electric Co 28.03 0.26 0.94%
Data as of 4:03pm ET


Judge denies request by Paul Smith's College to change its name in order to secure huge donation from philanthropist Joan Weill? More

The National Domestic Workers Alliance introduced a new initiative, Good Work Code, to set standards and protections for on-demand workers. More

The National Domestic Workers Alliance introduced a new initiative, Good Work Code, to set standards and protections for on-demand workers. More

Karim Abouelnaga turned down a job on Wall Street to address a problem that set him back as a low-income student: the summer slide. More

One of the largest pension funds in the country says it needs to cut benefits for 273,000 current and future retirees as soon as July. Otherwise, it won't be able to pay any benefits after 2025. More