Makin' Money

The required minimum distribution mess

Chris Farrell Dec 1, 2010

The folks at Fidelity note that Congress in late 2008 temporarily suspended minimum required distributions (MRDs) for tax year 2009. The MRD is the requirement that those aged 70-½ and older must withdraw an annual minimum amount from most IRAs and 401(k)s. But the MRD has been restated for 2010 for those born on 6/30/40 or earlier.

It’s a big issue since investors that do not withdraw the full amount of their MRDs by the deadline will have the amount not withdrawn taxed at 50 percent. That’s right: 50%.

Here are the rules ( nothing is simple): Investors who are required to take MRDs have until December 31 of that tax year to do so. However, if it’s your first time taking an MRD you have until April 1 of the following year. “This April 1 grace period does NOT apply, however, to those who would have been required to take their MRDs for the first time in 2009, but are now doing so for 2010 instead (those born between 7/1/38-6/30/39),” writes Fidelity. “These investors must take their 2010 MRDs by 12/31/10 to avoid a penalty.”

Crazy. But worth heeding. Otherwise lose 50% of your withdrawal to Uncle Sam. And here’s a longer article explaining MRDs and 2010.

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