Jim Hitt, CEO of American IRA, says, “Some folks are confused as to whether or not they need to take those minimum distributions. The most common thing I hear is that Congress enacted “The Worker, Retiree, and Employer Recovery Act of 2008” allowing seniors to skip distributions. I’m working to get the word out and reduce the confusion. “The Worker, Retiree, and Employer Recovery Act of 2008” only applied to 2009. It is critical that anyone age 70 ½ or older take their required minimum distributions as the penalty for not doing so is 50% of the amount that should have been withdrawn.”
Plans that Require Minimum Distributions:
According to the IRS website required minimum distributions (RMD) are required for profit-sharing plans, 401(k) plans, 403(b) plans, 457(b) plans, as well as traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.
Roth Accounts and RMD:
Finally, RMD also applies to Roth 401(k) accounts. The exception is Roth IRAs; RMDs are not required while the owner is alive.
Jim Hitt interjects, “A strategy that some Roth 401(k) account holders employ is rolling over their Roth 401(k) into their Roth IRA account in order to eliminate the RMD requirement.”
Deadline for Receiving a RMD from an IRA:
Account owners must take their first RMD in the year they turn 70 ½. For that year only, the RMD can be delayed until April 1st the year following the year they turned 70 ½ (For instance, if they turn 70 ½ in 2011, their RMD can be delayed until April 1st, 2012).
All other distributions must be taken by December 31st of the year including the first year in which the RMD was paid by April 1st (For instance, if they took their 1st years RMD on April 1st, 2012, they still have to take their 2012 distribution by December 31st, 2012).
Prior December 31st balance of the retirement plan divided by the life expectancy factor the IRS publishes in Publication 590. According to the IRS website, there are 3 separate tables used to calculate the life expectancy factor:
- The Joint and Last Survivor Table is used by an account owner whose sole beneficiary of the account is his or her spouse and is more than 10 years younger than the account owner;
- The Uniform Lifetime Table is used by account owners whose spouse is not the sole beneficiary or whose spouse is not more than 10 years younger; and
- The Single Life Expectancy Table is used by a beneficiary of an account.
For more information about RMD requirements, please refer to the IRS website.