2010 Required Minimum Distributions Are Back!

For 2009 the Worker, Retiree and Employer Recovery Act (WRERA) provided temporary relief to taxpayers by suspending the required minimum distribution (RMD) rules for qualified retirement plans and individual retirement accounts (IRA's). However, as of January 1, 2010, the RMD rules have been reinstated.

What does this mean to you?

Taxpayers who at least have one of the following:

• Employer-provided defined contribution qualified retirement plans (i.e., profit sharing plans, money purchase plans, 401(k) plans, 403(b) and certain 457 plans)
• Individual Retirement Plans (IRAs) - excluding ROTH IRAs and/or
• Individual retirement annuities

and who reached age 70 1/2 by the end of 2009 are required to take a distribution from their retirement plan based on an IRS formula no later than December 31, 2010.

Here are some examples to help you determine if you may need to take an RMD:

Example 1:
Taxpayer turned 70 1/2 prior to 2009. Taxpayer's normal RMD must be taken by December 31, 2010. The RMD will be based on the fair market value of the retirement plan as of December 31, 2009.

Example 2:

Taxpayer turns 70 1/2 in 2009. Ordinarily, the taxpayer would have the option of delaying his or her first RMD until April 1 of 2010 and would have to take two RMD's in 2010. However, because of the suspension of the RMD rules for 2009, the taxpayer in this example only has to take one RMD by December 31, 2010, based on the value of the account at December 31, 2009.

Example 3:

Taxpayer turns 70 1/2 in 2010. The taxpayer's 2010 RMD (based on the plan's value at December 31, 2009) can be delayed until April 1 of 2011. However if the taxpayer elects to defer the 2010 RMD until April 1, 2011, the taxpayer will have to take a second RMD (based on the plan's value at December 31, 2010) no later than December 31, 2011.

For taxpayers who are beneficiaries of inherited retirement accounts, your RMD was waived for 2009 as well, but you must start taking your regular RMD in 2010 once more.

The penalty for not taking any or all of the RMD by the required due date is a 50% excise tax, payable by the qualified plan participant or IRA owner or his beneficiary.

Your tax advisor should be able to assist you with the calculation of your RMD.

If you have any additional questions about the 2010 RMD, please contact your RBZ representative or other appropriate advisor. We would be glad to answer any questions you may have.

RBZ, LLP is one of the largest public accounting and strategic consulting firms in Los Angeles and has been providing tax services for over 35 years. We are located at 11755 Wilshire Blvd., Ninth Floor, Los Angeles, CA 90025.

Phone: 310.478.4148 | Fax: 310.312.0358 | Web site: www.rbz.com