A retirement planning group is reminding financial service professionals and their clients not to overlook the required minimum distribution (RMD), a compulsory withdrawal that must be taken from tax-deferred accounts by Dec. 31.

Cathy Weatherford

Congress waived RMD for 2009 in the midst of the recession, but it was restored for this year. The RMD is required for any account holder who is at least 70 ½ years old. Failure to withdraw the RMD carries a hefty penalty, costing investors an amount equal to 50% of the RMD.

“The RMD can feel like a burden on consumers by forcing them to take out money that they may not necessarily need, but are legally required to withdrawal,” said CEO Cathy Weatherford, president and CEO of the Insured Retirement Institute, in a statement. “With the waiver in 2009, many investors may have overlooked the impact of RMD on their financial planning for 2010, but there is still time to meet the requirement. Every investor’s situation is unique, so it is imperative that they work with a financial professional to plan for the least amount of impact on their investment portfolio.”

RMD is calculated by dividing the account’s balance from the end of the previous year by the account owner’s life expectancy as determined by the Internal Revenue Service.

The account balance also includes the actuarial value of additional benefits – such as living benefits, long-term care insurance and death benefits. The actuarial present value of these benefits is calculated by a carrier based upon its own cost and mortality assumptions and therefore the carrier is responsible to provide this calculation to the customer.