Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

Remember to take your 2008 required minimum distribution from your IRA

December 08, 2008

One of the most painful taxes is imposed on income you don't receive. If a taxpayer who has reached age 70 1/2 fails to take the "required minimum distribution" from an Individual Retirement Account, the law slaps a 50% tax on the amount not withdrawn.

The RMD must be taken by December 31. Taxpayers who turned 70 1/2 in 2008 have until April 1, 2009 to take their first required minimum distribution.

While many IRA trustees automatically compute the required distribution, they are not required to. Many others don't. If you have multiple IRAs, you aren't protected just because you have received one or more distributions; you have to take the RMDs based on the total balance of your IRAs. You can, however, take the entire RMD from a single IRA, as long as it's enough to cover your entire required distribution for all of your IRAs.

You compute your 2008 required minimum distribution by consulting the appropriate RMD table (linked here) and dividing your aggregate IRA balance as of December 31, 2007 by your remaining life expectancy; you should use this handy IRS worksheet to make the computation. For most taxpayers, this life expenctancy table applies.

There is no RMD requirement for "Roth" IRAs, so they are not part of the computation.

The bottom line: If you have reached age 70 1/2, it's up to you to make sure you take enough out of your IRAs.

UPDATE: While there has been talk about waiving minimum distribution requirements for 2008 as a result of the decline in the stock markets this year, nothing has happened yet.

UPDATE, 12/19/08: It looks like there will be no RMD waiver for 2008.

Tags: IRA.Required Minimum Distribution.year-end tax planning.

 • 2008 Year-end tax planning       Bookmark: del.icio.us • Digg • reddit