Now that the New Year is here, you can begin taking your required minimum distribution (RMD) for 2011. The following is an overview of the rules regarding these mandated distributions for older taxpayers.

The IRS does not allow IRA owners to keep funds in a Traditional IRA indefinitely. Eventually, assets must be distributed and taxes paid. If there are no distributions, or if the distributions are not large enough, the IRA owner may have to pay a 50% penalty on the amount not distributed as required. Generally, required distributions begin in the year the IRA owner attains the age of 70½.

**Beginning Date Requirement** – IRA owners must take at least a minimum amount from their IRA each year, starting with the year they reach age 70½.

A taxpayer who fails to take a distribution in the year age 70½ is reached can avoid a penalty by taking that distribution no later than April 1st of the following year. However, that means the IRA owner must take two distributions in the following year, one for the year in which age 70½ is attained and one for the current year.

If an IRA owner dies after reaching age 70½, but before April 1st of the next year, a minimum distribution is not required because death occurred before the required beginning date.

**Multiple IRA Accounts** – For purposes of determining the minimum distribution, all Traditional IRA accounts, including SEP-IRAs, owned by an individual must be taken into consideration. The required minimum distribution must be determined separately for each account. However, the amounts can be totaled and distribution can be taken from just one of the accounts or it can be taken from any combination of the accounts. If the owner chooses not to take the minimum distribution from each account, it is not uncommon for IRA trustees to require written certification that the owner took the minimum distribution from other accounts.

**Determining the Distribution **– The minimum amount that must be withdrawn in a particular year is the value of the IRA account divided by the number of years the IRA owner is expected to live.

**Determining Value:**The value of each Traditional IRA is based on the IRA’s value at the end of the business day on December 31st of the PRIOR year. Generally, IRA account trustees will provide this information on the year-end statements or on IRS Form 5498.**Determining the Distribution Period:**The IRS provides two tables for use in determining the IRA owner’s life expectancy (referred to as “distribution period” by the IRS). Generally, IRA owners will use the “Uniform Lifetime Table” to determine their “distribution period.” If the IRA owner’s spouse is the sole beneficiary (on all the IRA accounts), the Joint and Last Survivor Table may be used. However, the Uniform Lifetime Table will always produce the smallest minimum distribution, unless the spouse is more than 10 years younger than the IRA account owner.*Example: The IRA owner is 75 and from the “Uniform Lifetime Table,” the owner’s life expectancy is 22.9 years.***Determining Age:**Use the owner’s oldest attained age for the year of the distribution. Example: Suppose an IRA owner takes a distribution in February, when the owner’s age is 74, but later in November, turns 75. For purposes of determining the owner’s life expectancy, the oldest attained age for the year, 75, would be used in computing the minimum distribution. The same rule is used for the spouse beneficiary, if applicable.

*Example: **The IRA account owner is age 75 and the owner’s spouse, who is the sole beneficiary of the accounts, is age 72. Since the spouse is less than 10 years younger than the IRA account owner, the Uniform Lifetime Table will produce the smallest required distribution. From the table, we determine the owner’s life expectancy to be 22.9. The owner has three IRA accounts with a combined value of $87,000 ($25,000, $60,000 and $2,000) at the end of the prior year. The combined minimum distribution is $3,799 ($1,092 + $2,620 + $87, determined by dividing the value of each account by 22.9). (This is the same result as $87,000 / 22.9, but to comply with IRS rules, each account needs to be figured separately). *

**Uniform Lifetime Table** – The following table is the one that is generally used to determine the Required Minimum Distribution from Traditional IRA accounts. Not illustrated, because of their size, are the Joint and Survivor Life Table used to determine RMDs when the sole beneficiary spouse is more than 10 years younger than the IRA owner and the Single Life Table used for certain beneficiary RMD determinations. For table values not illustrated, please call this office.

**UNIFORM LIFETIME TABLE**

**Timing of the Distribution **– The minimum distribution computation determines the amount that must be withdrawn during the calendar year. The distributions can be taken all at once, sporadically or in a series of installments (monthly, quarterly, etc.), as long as the total distributions for the year are at least the minimum required amount. Amounts that must be distributed (required distributions) during a particular year are not eligible for rollover treatment.

**Maximum Distribution** – There is no maximum limit on distributions from a Traditional IRA and as much can be withdrawn as the owner wishes. However, if more than the required distribution is taken in a particular year, the excess cannot be applied toward the minimum required amounts for future years.

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Under-Distribution Penalty** – Distributions that are less than the required minimum distribution for the year are subject to a 50% excise tax (excess accumulation penalty) for that year on the amount not distributed as required.

*Example:** The owner’s required minimum distribution for the calendar year was $10,000, but the owner only withdrew $4,000. The excess accumulation penalty is $3,000, computed as follows: 50% of ($10,000 – $4,000).*

If the failure to withdraw the minimum amount or part of the minimum amount was due to reasonable error, and the owner has taken, or is taking, steps to remedy the insufficient distribution, the owner can request that the penalty be excused by completing applicable sections of Form 5329 and attaching an explanation. IRS will then determine if the penalty will be waived.

**Not Required to File** – Even though the IRA owner may not be required to file a tax return, they are still subject to the minimum required distribution rules and could be liable for the under-distribution penalty even if no income tax would have been due on the under-distribution.

**Death of the IRA Owner **– If the IRA owner dies on or after the required distribution beginning date, a distribution must be made in the year of death, as if the IRA owner had lived the entire year. If the distribution is after the owner’s death, the minimum amount must be distributed to a beneficiary.

If you are the beneficiary of an IRA or if you need assistance determining your RMD for 2011, please give this office a call.

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