Last Updated Dec 10, 2009 3:50 PM EST
Required Minimum Distributions. Once you reach age 70 1/2, you're required to take a distribution each year from your traditional IRA. The amount is set by the IRS, and goes up every year as you age. It starts at about 3.6 percent of your account balance and goes to over 10 percent once you reach your early 90s.
- But last year, Congress passed a law that provides for a one year suspension of required minimum distributions, which means you don't have to take a distribution in 2009 if you don't want to.
- You're also required to take an RMD from 401(k), profit sharing and other qualified retirement plans, so check with your accountant to determine whether your accounts are subject to the RMD rules.
But if you don't need the RMD this year, then you'll most likely have to inform your IRA custodian that you want to suspend the automatic distribution for 2009. Otherwise, you may end up paying taxes you could have avoided.
- But because the RMD has not been suspended for 2010, if you like the automatic RMD feature, you want to be sure that it is suspended for 2009, but still in place for 2010.
- If you're retired and have been taking monthly RMDs, you may still want to consider making changes for the last quarter of the year. If you don't need the extra distributions, you can reduce the distributions between now and the end of 2009.
- And don't forget about other types of accounts that might also be subject to the RMD rules but may not immediately come to mind, such as inherited IRAs, tax qualified annuities or a CD held in an IRA at the local bank.
Consult your individual tax advisor prior to making any tax decisions.
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