2009 Required Minimum Distributions

It is again important to focus on the issue of Required Minimum distributions (RMD’s) from Qualified Retirement Plans and Individual Retirement Accounts.

Who is Affected?
Anyone who was ever covered by a qualified retirement plan, a regular or rollover IRA, SEP, and/or SIMPLE, who has attained age 70&1/2. These individuals must begin taking distributions from their plans or accounts, unless they qualify for any of the following exemptions:

New Exemptions for 2009 only:

1. Any participant in a qualified defined contribution plan does not have to take a RMD for 2009 from such plans; such a participant nevertheless can elect to take the 2009 RMD by executing the attached exhibit, in which case the 2009 RMD calculation must be completed by the applicable deadline; absent such an election, no RMD for 2009 will be required or taken.

2. Any participant with a 414(k) account in a qualified defined benefit plan does not have to take a RMD for 2009 from such accounts ; such a participant nevertheless can elect to take the 2009 RMD by executing the attached exhibit, in which case the 2009 RMD calculation must be completed by the applicable deadline; absent such an election, no RMD for 2009 will be required or taken; most participants in a qualified defined benefit plan do not have a 414(k) account, so this exemption will rarely apply

3. Individuals with an IRA do not have to take the 2009 RMD from their IRAs.

Pre-2009 Exemption remains in effect:

Participants in qualified plans who are not 5% owners are permitted to defer their RMD until their actual retirement; Note that this exemption does not apply to RMD’s from any IRA’s.

When Must The 2009 Required Minimum Distribution Be Made?
For those non-exempt individuals who have attained age 70&1/2 in 2008 or earlier, the required minimum distribution must be taken by 12/31/09. For those individuals who have attained age 70&1/2 in 2009, the required minimum distribution must be taken by 4/1/10, but can be taken earlier in 2009. Note that if the initial required minimum distribution is deferred to 4/1/10, a second distribution will need to be taken by 12/31/10.

How Much Must Be Taken?
The IRS has issued regulations specifying how the required minimum distribution is to be calculated under defined contribution or defined benefit plans and IRA’s. Some of the factors which go into the calculation are the size of your account, your life expectancy and who you have named as your beneficiary. We will calculate the required minimum distribution based upon the plans and accounts we know of. If you maintain an individual IRA or have ever rolled over a distribution from another plan into an IRA rollover, the institution holding the money should be responsible to advise you of your required minimum distribution. If you have not heard from them by 12/15/09, we urge you to contact them for this information.

What If I Fail To Take My Required Minimum Distribution?
If you fail to take your required minimum distribution within the prescribed time frame, 50% of the amount of your required minimum distribution that you have not taken will be assessed as a penalty. For example, if your required minimum distribution for 2009 is $20,000 and you only take $8,000, $6,000 [(20,000 - 8,000) x 50%] will be assessed as a penalty. Therefore, it is critical that you take your required minimum distribution timely.

What to Do? If you maintain a qualified plan and Madison Pension is the TPA, please search your files and submit to us in writing any individual who you feel is or may be subject to these minimum distribution requirements. Also, your letter to us should include the plan name, the designated beneficiary, and birth dates of the employee and the beneficiary. Finally, if there were any distributions previously made, please indicate the dates and amounts. This information should be sent directly to your Plan Consultant at Madison. For those individuals who became subject to the required minimum distribution rules in prior years and all applicable information was previously submitted to our office, no further information needs to be submitted at this time, unless such individuals and/or their beneficiaries died or separated from service during the past year. Any deaths or separations from service may impact the required minimum distribution. Accordingly, it is critical that we be advised of any changes in status.

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