by Ryan McKeown, CPA, CFP®, Vice-President Financial Advisor, Wealth Enhancement Group

In 2009, Required Minimum Distributions for IRAs and other qualified plans for those who are age 70½ or older or have inherited retirement accounts, were suspended.
 
Unfortunately, they are back for year 2010 and it is time to start planning to take the appropriate distribution amount out to avoid significant penalties (50%) if you do not take out a proper amount. 
 
The required minimum distribution (RMD) is calculated by taking the December 31st account balance of the prior year divided by the distribution period (life expectancy factor) from the Uniform Lifetime Table for the account owner’s age at the end of the distribution year.  For example, if you turn 75 in October 2010, you would use 75 as your age to calculate your distribution.
 
The amount that you came up with based on this calculation needs to be taken out of your account by December 31st. We would recommend not waiting until the last minute to do so, eliminating the risk that the funds don’t come out in time. In reality, you would want to take out your RMD as soon as you possibly can at the start of the year. Then the funds come out of the plan, eliminating future growth on that amount that may cause your RMD amount to be higher in future years.  You have to take it out sooner or later, and the taxes will be the same amount regardless of when you take it out. 
 
There are a lot more planning situations that need to be considered when discussing required minimum distributions that would be impossible to cover in this article. If you are age 70½ or older or have an inherited retirement account, I would recommend sitting down with a retirement distribution expert as soon as possible. Make sure you are properly taking your distributions to avoid unnecessary taxes and penalties.