MRDs FOR RETIREMENT PLANS

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MINIMUM REQUIRED DISTRIBUTIONS (MRD)

An MRD is the minimum amout of money required by the IRS to be distributed from a retirement plan. MRDs were established essentially for the purpose keeping retirees from passing on tax advantaged monies to their children.

In general you must begin taking your MRD by April 1 following the year in which you reach age 70 and 1/2

Pre-1987 money or money accumulated before 1987 is not required for calculation in an MRD upon reaching age 70 1/2 . However, at age 75 pre-87 money must be distributed as part of an Incidental Benefit Requirement. This is in addition to the MRD amount.

It is significant to note that the pre-1987 rule does not apply to 401(K) and 401(A) retirement plans.

The penalty for not taking the minimum required distribution amount is 50% of the amount the MRD exceeds the actual distribution. This penalty is reported on Part III (Tax on Excess Accumulation) of Form 5329. The IRS may waive the 50% penalty if one:

Can establish that the shortfall was due to reasonable error;
and Is taking reasonable steps to correct the error

The following shows the difference in timing of the initial MRD for a participant turning 70 ½ in May 1996. Note that the deadline for the second MRD is the same for both situations.

Age 70 ½ in May 1996	Initial MRD	Second MRD
Participant A	June 30, 1996	December 31, 1997
Partipant B	March 31,1997	December 31, 1997