As we all know, the Worker, Retiree, and Employment Recovery Act of 2008 ("WRERA") temporarily suspended required minimum distributions ("RMDs") in 2009. Thus, many taxpayers chose not to take a RMD in 2009. However, in 2010, the RMD is back, and taxpayers required to take a distribution for 2010 must take it by the end of the year.
Assuming that a taxpayer did not take a RMD in 2009 as a result of WRERA, does the taxpayer have to calculate the 2010 RMD in a different manner? No! Nothing has changed with respect to the way that RMDs are determined.
When RMDs are calculated for a particular year the calculation is based on the December 31st balance from the prior year. Thus, taxpayers required to take a RMD for 2010 will use the value of their retirement account as of December 31st, 2009.
For example assume that Richard White, a 75 year-old retiree, has a retirement account. On December 31st, 2008, his retirement account had a balance of $155,624.35. By December 31st, 2009, as a result of depressed stock holdings, his retirement account balance had decreased to $134,510. After reviewing his 2009 income tax consequences with his accountant, Richard decided that it did not make any sense to take a RMD for 2009, in that any amount that he would have taken would have had to come out of the market - reducing his ability to recover his unrealized losses, and would be subject to excessive income taxation.
For 2010, as a result of Richard being 75 years of age in 2010, and having a RMD divisor of 22.9, he understands that by the year's end he will have to take a RMD of $5,873.79.
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