Required minimum distributions (RMDs) are back in 2010. The Worker, Retiree and Employment Recovery Act (WRERA) of 2008 temporarily suspended RMDs for IRAs and defined contribution plans during 2009. Now though, with 2009 in the rearview mirror, RMDs are back for good-barring any other changes in the law, of course.

The provision has left both clients and advisors with a host of questions on what RMDs must be taken in 2010 and how those withdrawals will be calculated. It is important for clients to take the RMD for 2010, since any RMDs not taken are subject to a 50% penalty.

Although WRERA eliminated RMDs for many clients in 2009, it left other aspects of the law unchanged. Indeed, for clients and financial advisors, it will be as important to know what WRERA didn't change as to know what it did. Three key areas of the law that were unaffected by WRERA are the required beginning date (RBD), life expectancies for non-spouse beneficiaries and which year-end balance to use.

THE RBD

The RBD for most clients is April 1 of the year following the calendar year in which they turn age 701/2 (there is a "still working" exception for certain participants of company plans). Though WRERA waived RMDs for 2009, it had no effect on the RBD. For example, if a client turned 701/2 in 2009, her RBD will be April 1, 2010; however, she doesn't have to take a distribution by that date. But if the client died on April 10, 2010, she still died after reaching her RBD for post-death distribution purposes.

In most cases, taxpayers must take their RMDs for each year by Dec. 31 of that year. A special rule exists, though, for the year clients turn 701/2. That year, clients can defer taking the distribution until their RBD (April 1 of the following year) instead. This extension is the same regardless of when during the year a person turns 701/2. For example, if a client turns 701/2 on Jan. 1, 2010 or Dec. 31, 2010, his RBD is still April 1, 2011.

While this special rule allowed clients to delay taking their first RMD, it doesn't eliminate that RMD or replace the RMD for the following year. So if clients choose to wait until April 1 following the year they turn 701/2 to take their first distribution, they must take two distributions that year-one for the year they turn 701/2 and one for the following year. Of course, many clients don't want to take two distributions in the same year, since the combination may push them into a higher tax bracket.

For example, let's say a client turns 701/2 in 2010. If she wishes, she can wait and take her first distribution by April 1, 2011. Although this distribution would take place in 2011, it would actually be the 2010 distribution. In addition, the client would have to take a second distribution from the account by Dec. 31, 2011, that same year.

Things were trickier in 2008 and 2009. For example, if Alan turned 701/2 in 2008, his RBD would have been April 1, 2009. This date would have been the latest he could wait to take his 2008 RMD without a penalty-and this distribution wasn't waived. Though normally Alan would've needed to take his second RMD by the end of 2009 as well, WRERA eliminated this RMD. In 2010, Alan must resume RMDs as usual, taking this year's by Dec. 31, 2010.

If Janet turned 701/2 anytime during 2009, her RBD is April 1, 2010. Since there were no RMDs for 2009, no distribution must be taken by this date. Nevertheless, April 1, 2010 is still considered Janet's RBD. Now, in 2010, Janet must take one distribution by Dec. 31, 2010.

NON-SPOUSE BENEFICIARIES

Let's say Bill dies in 2005, leaving his IRA to his son Steve (a non-spouse beneficiary). In 2005, the year of death, Steve turned 49. In 2006, the year the first RMD would be taken from the account, Steve turned 50. The IRS life expectancy (taken from the Single Life Table) of a 50-year-old is 34.2 years. Unlike an IRA owner, this would be the only year Steve would use the table. In 2007 (the next year), his life expectancy factor would be 33.2 years (34.2 less one year). And in 2008, the factor would decrease to 32.2 years (33.2 less one year).

What about 2009? Does Steve subtract one for 2009 even though no distribution was required? Does he skip the year entirely and pick up where he left off? Answer: Steve subtracts the one year, as if there was a 2009 RMD, so the factor for 2010 would be 30.2 years (32.2 less one for 2009 and one for 2010). WRERA contained no provision extending the life expectancies of beneficiaries (or IRA owners for that matter), so the RMDs for 2010 should be calculated as if WRERA never happened.

In each of the following examples, assume the IRA was left to Jim, a non-spouse beneficiary, who turned 49 in 2007: