IRA Required Minimum Distribution: Mark Lund
Interview

Federal law mandates that if you're 70½ or older, you must take a required minimum distribution from your individual retirement account (IRA). You could end up owing a sizable penalty if you don't take the required withdrawal.

Mark Lund, Chief Investment Strategist for Stonecreek Wealth Advisors, Inc.

Mark K. Lund is a retirement planning and investment expert. He is chief investment strategist for Stonecreek Wealth Advisors, Inc., a retirement planning and wealth management firm. Lund has spent over a decade managing private investment portfolios for his clients and sharing his knowledge on retirement planning with clients and non-clients through his newsletters, podcasts, newspaper articles and speeches.

LoveToKnow Seniors had the opportunity to talk with Lund about required minimum distributions for IRAs and receive his perspective on the penalties for not withdrawing enough money.

What are required minimum distributions (RMDs)?

Federal law requires you to withdraw money from traditional IRAs and inherited Roth IRAs starting at age 70½. If you don’t make a withdrawal, you’ll owe a 50 percent penalty on the amount you should have withdrawn.

Who is affected and how are RMDs calculated?

If you will become age 70½ somewhere between January and December in a given year, you have two options:

1. Take your initial minimum withdrawal. Look at your IRA balance from Dec. 31 of last year, divide it by the proper divisor shown in Appendix C of IRS Publication 590 Individual Retirement Arrangements, and withdraw at least that amount by Dec. 31.
2. Postpone your first RMD until April 1 of the next year; however, you’ll have to make a second withdrawal from that IRA by Dec. 31 of the next year. That means you will be taxed twice. To calculate your withdrawals:
   • First RMD – Use your IRA balance from Dec. 31 of the year before last year, your age at the end of last year, and the proper divisor in Appendix C of IRS Publication 590.
   • Second RMD - Take your IRA balance from Dec. 31 of last year and divide it by the proper divisor in Appendix C of IRS Publication 590. You must withdraw that amount or more by Dec. 31 of that year.

Are RMDs required in 2009?

You don’t have to take RMDs in 2009. On December 23, 2008 President Bush signed the Worker, Retiree, and Employer Recovery Act of 2008 into law, suspending all RMDs from IRAs, 401(k)s and 403(b)s for 2009.

This is sweet relief for people 70½ or older, especially people that don’t really need the IRA income. After all, no retiree wanted the “injury” of having to withdraw deductible IRA assets already hurt by the recession plus the “insult” of having to pay taxes on the RMD. With the suspension of the withdrawal requirements you can leave that money in your IRA in 2009 without incurring a tax penalty. And, if the markets recover in 2009, those invested assets can grow and compound.

What if you turned 70½ in 2008?

The suspension of RMDs did not impact the 2008 RMD. It was still required by April 1, 2009.

What if you turn 70½ in 2009?

The IRS says that if you turn 70½ in 2009, you have the option of delaying your first RMD until April of 2010. If you decide to do that, you will have to take two RMDs in 2010: one by April 1, 2010 for the 2009 tax year and one by December 31, 2010 for the 2010 tax year.

However, since nobody has to take an RMD for 2009, those turning 70½ won’t be required to take a 2009 RMD by April 1, 2010. However, you will still have to take a 2010 RMD by December 31, 2010, which the IRS will count as your “second” RMD, even though you didn’t take a “first” one for 2009.

How does this temporary suspension of RMDs affect those who inherit an IRA?

You get a break. You can forego a mandatory withdrawal in 2009 and effectively give yourself an extra year toward that pesky five-year rule, which demands distribution of all assets in the inherited IRA no later than December 31st of the fifth year after the original IRA owner’s death.

How does this affect IRA charitable rollovers?

IRA gifts can reduce your taxes. IRA withdrawals are always heavily taxed, at rates up to 35 percent. But thanks to the Pension Protection Act (PPA) of 2006, you can get a “senior discount”. If you’re 70½ or older, you can make a charitable gift through your IRA. Your IRA trustee can transfer up to $100,000 of your IRA assets to charity without incurring taxable income. Under the PPA, these charitable gifts count toward your mandatory annual withdrawal if you’re 70½ or older.

Hypothetically, let’s say you’re in the 28 percent tax bracket and you have to withdraw $20,000 from your IRA in a specific year. If you transfer that $20,000 to a qualified charitable organization before taking any distribution, you can cut your federal taxes by $5,600.

The amount of the charitable rollover counted toward your RMD, so IRA charitable rollovers became less attractive for 2009 because of the RMD suspension. You can still directly donate to a charity from your IRA in 2009 without incurring income taxes.

Will RMDs return in 2010?

With 2010 being such an experimental year for the federal tax code, Congress may decide to give older Americans another annual exemption from RMDs. But the odds of that happening seem pretty long. Most likely, deductible IRA owners 70½ or older and those who have inherited IRAs or 401(k)s will have to take mandatory withdrawals in 2010.

• For details on IRAs and minimum IRA distributions check the IRS website
• To learn more about Mark Lund, visit his website
• For more information about Stonecreek Wealth Advisors, visit their website

LoveToKnow Seniors has more information on retirement accounts including:

• Individual Retirement Accounts
• 401K Retirement Plans
• Charities and Estate Planning

Please note: The information in this article is for informational purposes only and is not intended as tax advice. You should consult your tax professional. Mark Lund offers securities through Sammons Securities Company, LLC Member FINRA and SIPC. His branch office is located at 10421 So. Jordan Gateway, Suite 600, So. Jordan, UT 84095.

~Susan Weber

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