Daily Dupaco

Wednesday, December 29, 2010

Take RMD on your IRA by Dec. 31 to avoid penalty

by Dennis Zuehlke

The deadline for receiving 2010 required minimum distributions (RMDs) from IRAs is right around the corner. Miss it and you will be subject to a 50% penalty tax on the amount you should have taken.

That's a costly but avoidable mistake. Unfortunately, for many IRA owners, the requirement is "out of sight, out of mind." That's because Congress waived the requirement for 2009.

But it's now 2010 and, since the waiver has not been extended, traditional IRA owners age 70 1/2 and older and some IRA beneficiaries are once again required to take minimum distributions from their IRAs by Dec. 31, 2010.

Q. How do I know if I have an RMD for my IRA for 2010?
A. All traditional IRA owners age 70 1/2 and older, and all IRA beneficiaries who are taking annual life expectancy payments of inherited IRA assets, have a 2010 RMD.

Q. What is the deadline for receiving my 2010 RMD?
A. The deadline for receiving your 2010 RMD is Dec. 31, 2010, unless you turned age 70 1/2 in 2010. In this case, you can delay receiving your 2010 RMD until April 1, 2011.

Q. How do I know the amount of my RMD?
A. To compute your RMD, divide your Dec. 31, 2009, IRA balance by your remaining life expectancy, using the life expectancy tables published in IRS Publication 590. If you are an IRA beneficiary, the calculation is more complicated, so contact the trustee or custodian of your inherited IRA for assistance.

Q. I took a distribution from my IRA in 2009 even though it was not required. Can I offset my 2010 RMD by the amount that I took last year?
A. No. You cannot reduce the amount of your 2010 RMD by any amounts taken in a previous year. Likewise, you cannot reduce your 2011 RMD by taking more than the amount of your 2010 RMD this year.

Dennis Zuehlke is compliance manager for Ascensus in Middleton, Wis.
Published by Home & Family Finance(R) Resource Center
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