Special Rule for 2009:
The Worker, Retiree, and Employer Recovery Act of 2008 (Act) was signed into law by the President on December 23, 2008. The Act waives 2009 Required Minimum Distributions (RMDs) from Individual Retirement Arrangements (IRAs), 401(k), Profit-Sharing, Money Purchase Pension, 403(b), and certain 457 retirement plans. The Act does not waive any 2008 RMD due by April 1, 2009. See the FAQs applicable to 2009 Required Minimum Distributions below and Notice 2009-9 for additional information.
- What are Required Minimum Distributions?
- What types of retirement plans require minimum distributions?
- When is the deadline for receiving a RMD from an IRA?
- How is the amount of the RMD calculated?
- Can an account owner just take a RMD from one account instead of separately from each account?
- Who calculates the amount of the RMD?
- Can an account owner withdraw more than the RMD?
- What happens if a person does not take a RMD by the required deadline?
- Can the penalty for not taking the full RMD be waived?
- Can a distribution in excess of the RMD for one year be applied to the RMD for a future year?
- How are RMDs taxed?
- Can RMD amounts be rolled over into another tax-deferred account?
FAQs applicable to 2009 Required Minimum Distributions
- Is an account owner who turned 70½ in 2008 and had planned to take his or her first RMD by the April 1, 2009, deadline still required to take that 2008 RMD?
- How does the 2009 RMD waiver affect an account owner who may turn 70½ in 2009?
- If an account owner does receive a 2009 RMD, can he or she roll it over into an IRA?
What are Required Minimum Distributions?
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. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 70 ½, regardless of whether he or she is retired.
Retirement plan participants and IRA owners are responsible for taking the correct amount of RMDs on time every year from their accounts, and they face stiff penalties for failure to take RMDs.
When a retirement plan account owner or IRA owner dies before RMDs have begun, different RMD rules apply to the beneficiary of the account or IRA. Generally, the entire amount of the owner’s benefit must be distributed to the beneficiary who is an individual either (1) within 5 years of the owner’s death, or (2) over the life of the beneficiary starting no later than one year following the owner’s death. See Publication 590 , Individual Retirement Arrangements (IRAs), for complete details on when beneficiaries must start receiving RMDs.
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What types of retirement plans require minimum distributions?
The RMD rules apply to all employer sponsored retirement plans, including
profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.
The RMD rules also apply to Roth 401(k) accounts. However, the RMD rules do not apply to Roth IRAs while the owner is alive.
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When is the deadline for receiving a RMD from an IRA?
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.
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How is the amount of the RMD calculated?
Generally, a RMD is calculated for each account by dividing the prior December 31st balance of that IRA or retirement plan account by a life expectancy factor that IRS publishes in Tables in Publication 590, Individual Retirement Arrangements (IRAs). There are three separate tables:
- 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.
See the available worksheets to calculate required minimum distributions.
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Can an account owner just take a RMD from one account instead of separately from each account?
An IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from one or more of the IRAs. Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract that he or she owns, but can take the total amount from one or more of the 403(b) contracts.
However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each of those plan accounts.
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Who calculates the amount of the RMD?
Although the IRA custodian or retirement plan administrator may calculate the RMD, the IRA or retirement plan account owner is ultimately responsible for calculating the amount of the RMD.
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Can an account owner withdraw more than the RMD?
Yes.
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What happens if a person does not take a RMD by the required deadline?
If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with his or her federal tax return for the year in which the full amount of the RMD was not taken.
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Can the penalty for not taking the full RMD be waived?
Yes, the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329 and attach a letter of explanation. See the instructions to Form 5329 for all the rules on how to apply for this waiver.
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Can a distribution in excess of the RMD for one year be applied to the RMD for a future year?
No.
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How are RMDs taxed?
The account owner is taxed at his or her income tax rate on the amount of the withdrawn RMD. However, to the extent the RMD is a return of basis or is a qualified distribution from a Roth IRA , it is tax free.
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Can RMD amounts be rolled over into another tax-deferred account?
No.
Please refer to Publication 590 , Individual Retirement Arrangements (IRAs), for additional information.
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Is an account owner who turned 70½ in 2008 and had planned to take his or her first RMD by the April 1, 2009 deadline still required to take that 2008 RMD?
Yes, the new law only waives 2009 RMDs and not any 2008 RMDs that an owner chooses to be paid by April 1, 2009. If an account owner fails to take his 2008 RMD by April 1, 2009, he or she may have to pay a 50% excise tax on any RMD amount not taken.
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How does the 2009 RMD waiver affect an account owner who may turn 70½ in 2009?
An account owner who turns 70 ½ in 2009 would have been required, in the absence of the 2009 RMD waiver, to take his or her first RMD (the 2009 RMD) by April 1, 2010, and then take his or her 2010 RMD (the second RMD) by December 31, 2010. The Act, however, waives the first RMD (the 2009 RMD) for account owners who turn 70 ½ in 2009. However, the 2009 RMD waiver does not affect RMDs required for 2010. Therefore, the account owner who turned 70 ½ in 2009 would still be required to take his or her second RMD by December 31, 2010.
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If an account owner does receive a 2009 RMD, can he or she roll it over into an IRA?
Maybe. Since any distribution in 2009 will not be an RMD, an account owner may be able to roll it over into an IRA if it is an eligible rollover distribution and otherwise satisfies the rollover rules. Generally, an eligible rollover distribution is any distribution from a retirement plan that is not a RMD, but there are other exceptions. An account owner who receives a distribution from a designated Roth account can only roll that amount over into a Roth IRA but may rollover any other eligible rollover distributions into a traditional IRA. If the account owner wants to put the eligible rollover distribution (other than from a designated Roth account) into a Roth IRA, he or she must still include any part of the distribution not previously taxed in his or her gross income and must meet the rules for converting a traditional IRA to a Roth IRA. These are:
See Publication 590, Individual Retirement Arrangements (IRAs), for additional information.
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