Ordinarily, individuals who have reached the age of 70 ½ must take a certain amount of money out of their qualified plans (e.g., their IRAs and 401Ks) every year. The penalty for failing to do so is 50% of the difference between what was distributed and what ought to have been distributed according to IRS rules.
Calculating Required Minimum Distributions (RMDs) in Ordinary Times (not 2009)
To calculate your RMD for a given year, you divide your account balance as of the end of the previous year by your life expectancy, as determined by the IRS. Fortunately, most IRA and 401K custodians will do all of the math for you upon your request. Ordinarily, you must distribute at least this amount before the end of the tax year in order to avoid the 50% penalty. Should you choose to distribute more, that is no problem.
2009 Required Minimum Distributions Are Not Actually Required
Due to the market correction that began during 2008, Congress passed a law allowing for a one-year moratorium on RMDs. This allows those retirees whose retirement portfolios have taken a beating time to allow for their investments to (hopefully) recover without being forced to sell at relatively low prices to make their required minimum distribution.
Reached 70 ½ During 2008? Your Initial RMD Is Not Delayed
Typically, your first RMD must occur by April 1 of the year following the year in which you reach 70 ½. If you reached 70 ½ during 2008 but did not take your initial distribution by the end of 2008, you must still take your first distribution by April 1, 2009. However, your second distribution, which ordinarily must have occurred by December 31, 2009 is not required to occur until December 31, 2010.
Reached 70 ½ in 2009 ? Your Initial RMD Is Delayed (But Not As Far As You Might Think)
If you reach 70 ½ in 2009, you would ordinarily have to take your first retirement planning distribution by April 1, 2010. Typically, your second RMD would be due by December 31, 2010. Because of the elimination of your 2009 RMD however, your first distribution must occur by December 31, 2010 (not April 1, 2011). In effect, you receive a nine-month extension to take your initial RMD, not a full year as you might expect.
