Required minimum IRA distributions are back this year, after a break from Congress in 2009 that was intended to give accounts some time to bounce back from the lows of the recession. If you're out of practice -- or making a required distribution from your IRA for the first time -- here's what you need to know:

How It Works

Most people aged 70 1/2 or more have to take their distributions by Dec. 31, 2010, with one exception: If you turned 70 1/2 this year (2010), you can wait until April 1, 2011, says Rebecca Pavese, a CPA and the manager of Palisades Hudson Financial Group's tax practice in Atlanta. Just know that if you decide to wait until next year -- say you take it in March -- you'll have to take another by the end of the year, so two total.

How Much Do You Take?

Distributions are calculated by IRS rules, so you have to adhere to an exact formula. "The custodians are very good about issuing you a letter telling you about your required minimum distribution, or you can look at your December statement from the previous year, and calculate it using the IRS's tables," explains Pavese. Your 2010 distribution is based on your account's value on Dec. 31, 2009 and one of three IRS tables (found in Appendix C of IRS Publication 590 -- essentially, you're dividing your IRA account balance by what the IRS has determined is your life expectancy factor).

You want to make sure you're using the right table -- the first is for account beneficiaries, the second is for account owners whose spouse is more than 10 years younger than they are and is the sole beneficiary, and the third is for account owners whose spouse isn't the beneficiary or is less than 10 years younger than they are.

Consider Taxes

This money is taxed as ordinary income because you received a tax deduction when you contributed it. In most cases, Pavese says that if you had a bad income year this year -- say you were self-employed and lost money -- you should take a little extra because you have that negative income to offset the distribution. For example, if your required minimum distribution is $50,000, and you had a loss in income of $100,00, you could take an additional $50,000 out this year and save on taxes. Although you'll lose the tax-deferred status on the money, you can reinvest it -- in the same or similar vehicles -- in a taxable account so it keeps growing until you really need it.

The same strategy applies if you think your tax rate is going to go up next year and you're going to need more than the required minimum distribution then. Pull out that extra amount now, when you know what your tax rates are, and avoid an increase later. "Say you're planning a home renovation in 2011 and you're going to use money from your IRA, and you're exceeding the required minimum distribution amount. That's an example where you would want to take it in 2010 rather than 2011, assuming tax rates are going to go up, because you're going to take it anyway," advises Pavese.

Note that this veers from the standard advice, which is generally to defer income as long as possible. That's true when tax rates are going to be the same year to year, but if they might go up the following year -- which is the situation we're in now -- you're better off erring on the side of caution. To be on the safe side, wait to take your 2010 distribution until December, when we'll have a better idea of next year's tax rates.

Increase your money and finance knowledge from home

How to Avoid Financial Scams

Avoid getting duped by financial scams.

View Course »

Getting out of debt

Everyone hates debt. Get out of it.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Q; How can anyone PLAN wisely when the game and the rules of the game keep changing so often? And, in fact, all too often there are no known rules of the game. A: It cannot be done.

October 14 2010 at 6:52 PM Report abuse rate up rate down Reply

Here's the dems solution to the social security problem! The government is preparing to seize the private 401(k) pensions of millions of Americans while enforcing an additional 5 per cent payroll tax as part of a new bailout program that will empower the Social Security Administration to redistribute pension funds in a frightening example of big government gone wild. Make your vote count in November!

October 14 2010 at 11:48 AM Report abuse rate up rate down Reply

Too many of these posts make ones brain synapses misfire. The lack in clarity of expression and the brain strain imposed by posters' awkward sense of grammar, syntax, and semantics can easily leave one mindless, if not completely speechless. Better to be thought of as a fool and say nothing, than to remove all doubt by attempting to say anything at all. We all like to know what others think and welcome their thoughts, but please don't take the sapient part out of Homo sapiens.

October 14 2010 at 11:25 AM Report abuse rate up rate down Reply

That is part of the Obama and the Democrats strategy is to ream the elderly by not increasing their Social Security Income in an attempt to force them into withdrawing large portions of their retirement savings so the Government can increase their tax revenues. This is called trying to reduce the federal deficit on the backs of the elderly by forcing them to be poorer.

October 14 2010 at 8:24 AM Report abuse +2 rate up rate down Reply

leave the democrats in charge of Congress and you will find your nation with 10 million illegal aliens promoted to CITIZEN. How long before California is renamed New New Mexico???? The democrats have refused to enforce immigration law, that is totally Obammy's fault.

October 14 2010 at 7:38 AM Report abuse +1 rate up rate down Reply
1 reply to dtwoleftfeet's comment

dingbat!!! this invasion started under bush. condoned and endorsed by the republicans. when they take back control they will push for the same amnesty program reagan inacted.QUIT WATCHING FOX!!!!!!!1

October 14 2010 at 7:54 AM Report abuse rate up rate down Reply

The feds and the states just about have there HAND in to every thing we do as the people WHEN WE SPEND that good old American dollor. Most don,t see it but there TAKE is in there even when you spend one lousy buck for a pack of gum. From the taxes on the gas you put in you cars to the electric bill you pay every month to the store where you buy that shirt to the case of beer, and snacks for that foot ball game in frount of the tube. The American people are taxed no matter what they do and most don,t really sit down and figure it out, we just go blinding with our daily stuff paying taxes all over the palce and don,t think anything about it.

October 14 2010 at 2:58 AM Report abuse +4 rate up rate down Reply

The other day i was talking to a friend, he was bitching about his cell phone costs .. SO i said get a pen and paper and do this he pays $ 150.00 average a month , so 150.00 times 12 months is what .. then times that to say nice round # of having those phones for 10 years. He sat there stunned on the THOUSANDS of bucks he paying out over a short 10 years just to talk and his kids to talk about crap over the phone. He said i could have paid off the extra room he had built on his house that cost him 15 GRAND. The goverment and states tax little by little so people don,t go into shock. its the old used car salemans trick of marking on the windshield prices of the car of $2,990.00 IS REALLY # GRAND but it tricks customers to to saying the car is cheaper, same with stores $ 12.98 its really 13.00 bucks. The goverment and states do the same con job PICK AWAY a liitle at a time to the masses and end up with a ton of money.

October 14 2010 at 2:24 AM Report abuse +2 rate up rate down Reply

Taxes is money used to pay all the people in washington .. washington is in the people bussiness, taxes is there income. I know before anyone writes it washington workers pay taxes also, i know but this country can,t be run on just the taxes collected on washington employees, our goverment needs the mass pubic to pay to get all the billions it needs to run this country. Sit down and figure all the taxes you have paid in a 40 working years you will be shocked. Then sit down and figue how much state taxes you spent connected to your electric bills, and fed. and state connected to your heating bills, and your taxes on your property over that 40 years .. then call the parametics because you will need them. This country and our states are taxing the hell out of its people, and most don,t realize it.

October 14 2010 at 2:10 AM Report abuse +6 rate up rate down Reply

BABU doesnt know Bush is not in office. Please advise while he is still awake. Or maybe its long too late.

October 14 2010 at 1:35 AM Report abuse rate up rate down Reply

any of you nitwits that really consider the advice of anyone that writes on these posts should suffer the full impact of the results

October 13 2010 at 11:58 PM Report abuse +1 rate up rate down Reply
1 reply to mike's comment


October 14 2010 at 1:31 AM Report abuse rate up rate down Reply