Publications

The Worker, Retiree, and Employer Recovery Act of 2009 suspended required minimum distributions (RMDs) from defined contribution accounts for 2009. This Client Alert will highlight some factors you may want to consider if you are currently subject to the RMD requirements.

Background. Generally, RMDs must be taken from IRAs and certain qualified retirement plans after the owner or participant reaches 70 1/2 years of age. For some employees who work past age 70 1/2, RMDs from qualified plans may be delayed until after retirement. Beneficiaires who inherit an interest in an IRA or qualified plan account must also take RMDs. (Roth IRA accounts are not subject to the RMD rules during the account owner’s lifetime, but RMDs must be taken after the account owner’s death, even though the distributions are generally not taxable).

In most cases, RMDs are calculated by dividing the account balance at the end of the prior year by a factor based on the participant’s or beneficiary’s life expectancy. If an account balance declines significantly during a year, the RMD can represent a disproportionately large share of the remaining account balance. By suspending RMDs in 2009, the new law gives affected retirement accounts an opportunity to regain more of the value they have lost in the recent economic downturn.