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Required Minimum Distributions are Back

Posted by Cheryl Costa  January 13, 2010 09:39 AM

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Late in 2008, when the markets were doing so poorly, Congress passed a law that suspended Required Minimum Distributions (RMDs) from IRAs, 401(k)s, 403(b)s and other defined contribution plans for 2009.  (The provision applied to inherited IRAs as well.) 

The intent was to relieve people of the double burden of taking distributions just when their portfolios were at their (almost) lowest values.  That was a nice break, but it was only for one year and now that we have entered 2010, it is important to remember that  RMDs are "back" and there are a few rules that everyone should be aware of.

First, if you have several IRAs scattered across several custodians, you can generally add the balances of all the IRAs and take the required distribution from any of the IRAs.  You could also take the distribution from each and every IRA that you own, but that may be cumbersome to implement.

401(k) and 403(b) plans, however, are different.  If you are retired and have old 401(k)s with your previous employers, you must take the required distribution from each 401(k) or 403(b).  So, if you have four 401(k)s, you must take a distribution from each one.  It is relatively easy to "miss" an old 401(k) and that is one of the arguments for consolidating your old 401(k)s into a single IRA.

One other important fact about 401(k)s: if you are over age 70 1/2 but still working for the company, no distribution is generally required.  There are some exceptions to this rule (for example, if you own more than 5 percent of the business you work for) and some companies don't recognize this provision so be sure to check with your plan administrator.

Finally, when using the IRS tables to calculate your RMD, it is important to remember to use the account value as of December 31st of the previous year but your age as of the current year.  So, the account value springs "back" but your age springs "forward'.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit www.morganstanleyfa.com/ringer
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