 NEWSLETTERS Volume 9, Issue 1 .................... February 2009 Required Minimum Distribution Rules Required Minimum Distributions (RMD) are mandatory payments of benefits from a qualified retirement plan or individual retirement account (IRA) after a participant reaches age 70½. However, the required beginning date (RBD) of these distributions can be different for individuals in retirement plans depending on whether the participant is an owner of the business sponsoring the retirement plan or not. The RBD is the date RMDs must begin. The RBD is identified below for various situations: 1. April 1st after the end of the calendar year in which the individual reaches age 70½ for: 5% owners (defined as someone who owns more than 5% of the business plus any spouses, children or parents of an owner). Employees who are not 5% owners and who retire before or during the year they reach age 70½. Owners of IRAs. 2. April 1st after the end of the calendar year in which the individual retires for: Employees who are not 5% owners who continue to work for the employer sponsoring the plan beyond the year in which they reach age 70½. A minimum distribution must be paid to a participant as of the RBD and for each calendar year thereafter. The amount of the Required Minimum Distribution is the account balance at the end of the prior year divided by the life expectancy determined from the uniform lifetime table based on the participant's highest attained age in the calendar year. This amount is the minimum distribution for the year. The participant could request higher payments. However, distributions in excess of the minimum cannot be carried over to satisfy the minimum distribution in a future year. If a participant does not receive the minimum distribution by the required time, the participant is subject to a 50% excise tax on the amount of the underpayment. The Internal Revenue Code requires every qualified plan to provide the RMD as soon as a participant reaches his or her required beginning date. So, if an individual worked at several jobs during his career and leaves money in each retirement plan until reaching age 70½, then each plan is required to distribute a RMD amount to the individual. The rules for RMDs from IRAs are similar to the rules for qualified retirement plans except that RMDs start at age 70½ even if the individual is not retired and RMDs from IRAs may be aggregated. Thus, if an individual has traditional IRAs with several different financial institutions, the individual can calculate the RMD amount from each IRA and then can take the total combined RMDs from just one IRA, from all IRAs or any combination of the IRAs as long as the total combined RMD amount is taken. The RMDs from the IRAs can not be combined with those from a qualified retirement plan, though. The aggregation rules do not apply to qualified retirement plans. Roth IRAs are not subject to the minimum distribution rules during the lifetime of the account owner, but Roth monies in a qualified retirement plan are subject to these rules. Thus, if an individual has Roth money in a qualified retirement plan and is approaching age 70½, they may want to consider a rollover of this money into a Roth IRA so the money is not subject to the required minimum distribution rules once they reach age 70½. Note, there are restrictions on when a distribution of Roth money from a qualified plan is considered not taxable. Please consult your tax or investment advisor for details. If you have any questions
about required minimum distributions, please do not hesitate to contact
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