The Return of RMDs

As you know, required minimum distributions (RMDs) were suspended in 2009 to allow investment portfolios an opportunity to recover from the market decline of 2008. In 2010, RMDs are back. Of course, a financial advisor will be able to determine how to best handle your RMDs. Here are some general rules.

If You're an IRA Owner Who Turned 70 1/2 in 2009

You ordinarily would have been required to take your initial required withdrawal by no later than April 1 of this year. That initial required withdrawal would have been for the 2009 tax year. The deadline of April 1 of the following year may seem weird, but the idea is to give you a penalty-free grace period for the first required withdrawal. Anyway, since there was no required withdrawal for 2009, there was no April 1 deadline this year. Instead, you must take your initial required withdrawal, which will be for the 2010 tax year, by Dec. 31, 2010. Next year, you must take your second required withdrawal by Dec. 31, 2011. And so on for 2012 and beyond.

If You're an IRA Owner Who Turned 70 1/2 before 2009

You must take your required withdrawal for the 2010 tax year by no later than Dec. 31, 2010. You must take another one for the 2011 tax year by Dec. 31, 2011. And so on for 2012 and beyond.

If You're an IRA Owner Who Will Turn 70 1/2 in 2010

You must take your initial required withdrawal (which is for the 2010 tax year) by no later than April 1, 2011. Next year, you must take the second one by Dec. 31, 2011, and so on for 2012 and beyond.

Importantly, you have the option of taking your initial required withdrawal by Dec. 31 of this year. That can be a tax-smart move for high-income folks and those with large IRA balances -- because it avoids having to jam two required withdrawals into 2011. Your tax rate may be higher next year, and the extra income could also cause valuable tax breaks to be reduced or eliminated (due to unfavorable phase-out rules that kick in as income goes up).

Again, for more specific advice speak to a financial planner.