2009 RMD (Required Minimum Distribution) Waiver and Tax Penalty

If you are an IRA holder and upon reaching 70 1/2 this year in 2009, you are required to withdraw some of your money in order to begin paying taxes on it.  This is called a required minimum distribution (RMD) and is mandated by the Internal Revenue Code.  If an individual fails to take an RMD, the penalty can be 50 percent of the amount to be withdrawn.  In the fall of 2008 the Bush administration allowed provisions for a one year waiver on RMDs due to the drop in the stock market and resulting decreases in retirement account values.

Remember, you do not have to take RMD from your account in 2009 in order to pay taxes that were required if the waiver was not approved.  However, in 2010, RMDs are required and do not change.  You will be required to take a distribution by December 31st, 2010 if you turned 70 1/2 this year. Additionally, these RMDs must be calculated for each IRA account, tax sheltered annuity (403b) owned.  You are permitted to withdraw the total amount owed from one or more accounts. If you have a 401k or deferred compensation plan, then the withdrawal must be taken separately from each account.

If you do not take an RMD by the deadline, the amount not withdrawn will be taxed at 50% of the excess accumulation-which is the difference between the amount that was required minus the amount actually withdrawn.  In this case, you must file an IRS form 5329-additional taxes on qualified plans.  This form is filed with your federal tax return for the year the full amount of the RMD was not withdrawn.  If you can demonstrate that the failure to withdraw your RMD was reasonable and are taking steps to correct the error, the penalty may be waived.  Your explanation must be in writing to the IRS.