Last year, 2009, those that are age 70 and 1/2 or older, had a one year legislative moratorium from the mandated RMD or Required Minimum Distribution from their Qualified/IRA/Sep/Beneficiary IRA type of accounts.
This year, 2010, this rule is back and it is important to make your RMD distribution before year end.
What is the logic of this mandatory distribution?
On the type of accounts mentioned (Qualified), you have either not payed taxes or in some cases paid very little taxes on the funds that are in the account i.e. tax free contributions.
The IRS does not allow us to have these accounts forever, said another way, they want their taxes, and by forcing the distribution of funds from these accounts taxes will be due.
According to the IRS website, here is the rule:
“Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 70 ½ years of age or, if later, the year in which he or she retires…..”
For first time (recently reached or about to reach 70 and 1/2 year olds) there are special rules which we will elaborate on in an upcoming post (pay special attention to the underlined area.)
Here is the rule for first time RMD’ers, again from the IRS website:
“An account owner must take the first RMD for the year in which he or she turns 70 ½. However, the first RMD payment can be delayed until April 1st of the year following the year in which he or she turns 70 ½. For all subsequent years, including the year in which the first RMD was paid by April 1st, the account owner must take the RMD by December 31st of the year.
Coming soon, “When to take your first RMD?”
Have a Great Day!