50+ Lifestyles

They’re Back!!! RMDs are back for 2010!

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

We manage assets to protect valued retirement money against life’s risks – taxation is a risk.

We are continuing our theme during this 1st half of 2010 on the tax risk we face with our retirement money. Income tax season is over for 2009 unless we have an extension. But the taxation risk continues. Tax remains a threat to income. The more we pay in taxes the more income is reduced. If we can minimize or reduce tax, we increase income. How important is that in retirement? Huge in importance!

RMDs are another tax and returning for 2010. Recall the tax law – Worker, Retiree and Employment Act signed into law in December 2008 included a temporary suspension of the required minimum distributions (RMDs) for both IRAs and retirement plans for 2009. Renowned IRA expert Ed Slott states “Now with 2009 in the rearview mirror, RMDs are back for good – baring other changes in the law, of course. The suspension of RMDs was supposed to be a simple way to give retirement account owners a break after the market downturn in 2008 by one-year suspension of this requirement.”

The one-year suspension is over – they’re back. What’s back (RMD) is the amount that the federal government requires you to withdraw
annually from retirement plans after you reach age 70 1/2. The law applies to all retirement plans – IRAs, 401ks, 403bs, and other employer-sponsored retirement plans such as stock bonus plans, profit-sharing plans. All plans are included – except Roth IRAs.

Your first required distribution from an IRA or retirement plan is for the year you reach age 70 1/2. However, you have some flexibility as to when you actually have to take this first-year distribution. You can take it during the year you reach age 70 1/2, or you can delay it until April 1 of the following year. Since this first distribution generally must be taken no later than April 1 following the year you reach age 70 1/2, this April 1 date is known as your required beginning date. Required distributions for subsequent years must be taken no later than December 31 of each calendar year until you die or your balance is reduced to zero. This means that if you opt to delay your first distribution until April 1 of the following year, you will be required to take two distributions during that year – your first year’s distribution and your second year’s required distribution. Example: you have a traditional IRA. Your 70th birthday was December 2, 2009, so you will reach age 70 1/2 in 2010. You can take your first RMD during 2010, or you can delay it until April 1 2011. If you choose to delay your first distribution until 2011, you will have to take two RMDs during 2011 – one for 2010 and one for 2011. This is because your required distribution for 2011 cannot be delayed until the following year. RMDs are a tax. RMDs are required. RMDs are back for 2010. Remember RMDs apply to all qualified retirement plans except – Roth IRAs.

The mission of our firm, RJS and Associates, is to manage and protect assets. We manage assets to protect valued retirement money against life’s risks – taxation is a risk. There are strategies that can be developed to help reduce and minimize this tax risk to our retirement income. Please note our ad to the right. We can help. We encourage you to take control of this taxation income risk by taking action. Call us to discuss your situation and for a no-cost publication explaining the RMD in detail.

Looking forward to hearing from you. Enjoy this beautiful May weather.