I am new to IRA's. I understand that we are suppose to send statements to all those IRA holders who are required to take minimum distributions in the year. Was this for the year 2003 too? Are required to send this to all who are required or just those who have now met the 70 1/2 threshold? Also, is there (I am sure there is) an IRS form that must be completed for this. Sorry for my ignorance in this matter.

Yes, you need to let the customer know at the beginning of each year what their RMD amount will be for that year. Yes, we had to send letters in January of 2003. The letters are required to be sent to each person that is to take an RMD for that year. We have a program on our new accounts software that has and RMD notice right in it, we just enter the name of the customer and the amount for which year. We mail a copy and keep a copy in the customer's file to prove that we sent it and what the RMD is. If you have any other questions, please feel free to PM me and we can discuss on e-mail.

Starting in 2003 - You must send the RMD-requirement notices for every IRA plan that has a required RMD for that year, if the IRA holder had a balance as of December 31 of the prior year and was alive as of January 1st. It must be postmarked to the IRA holder by January 31st. (1/31/04 is a Saturday, so it will be Monday 2/2/04 - Groundhog Day - instead.)

As for the content of the notice (if you system doesn't automatically print them for you), you have two options:

Option 1:
The statement must include
- the amount of the RMD with respect to the IRA Plan for the calendar year
- the date by which the amount must be distributed
- a statement communicating to the IRA holder that the IRS will receive a report indicating that an RMD is to be received for the year.

You are allowed to calculate the RMD using the straight RMD = (FMV) / (Distribution Period), without making any of the balance adjustments or using the joint life table if the spouse-beneficiary is more than 10 years younger.

Option 2:
The statement must:
- inform the IRA holder that a minimum distribution with respect to the IRA is required for the calendar year
- notify the IRA holder of the date by which such RMD must be distributed
- include an offer to furnish the IRA holder, upon request, with a calculation of the amount of the RMD with respect to the IRA for that calendar year
- communicate to the IRA holder that the IRS will receive a report indicating that the IRA holder is required to receive an RMD for the year.

You must perform the actual RMD calculation for the IRA owner upon demand, including the balance adjustments for outstanding rollover / transfer amounts and Roth recharacterizations, and using the joint life table if the spouse-beneficiary is more than 10 years younger.

- - - -
When surveyed in IRA seminars, it seems to be split about 50/50 for which option people are using.

You can combine the RMD notice with the Annual (FMV) Notice, if you want.

You can even use the 5498 (if you mail them before Jan 31) by checking Box 11 ("Check if RMD for 2004") and including the amount and withdrawal deadline in the blank box to the left of Box 10.

You have to check Box 11 on the 5498 anyway, whenever you mail them, to let the IRS know that this IRA holder is subject to RMDs. This is new for 2004.

Where can I find out more information relating to the particulars? I copies your post to the employee that manages our IRA accounts... and she was not aware of any changes. I'd like to direct her to more information.

See IRS Notice 2002-27, but Tisa's description is accurate and inclusive.

I know we have to show a RMD is required on the 5498 BUT are we going to have to show the amount required in the 5498's mailed this coming January?

No, as Tisa noted, all you have to do is put an indicator in field 11; it is not a numeric field. Commenters convinced the IRS that there were too many variables involved to make a dollar figure reliable.

To me, providing a number in May (when 5498's are due to the IRS) that you provided to the taxpayer in Janaury doesn't seem so tough... In any case, the IRS begrudgingly agreed not to require the RMD amount on the 5498, but reserved the right to change their mind in future years.

P.S. Your January mailing of the 5498 is voluntary and is meant to meet the requirement of an annual statement showing a year end balance. It very definitely will not meet the requirements of the notice referenced above, but there is nothing that says you cannot include the notice with the 5498 or annual statement for the affected customers.

...and p.s. - I agree with you that it wouldn't be that much trouble to fill in the amount that we've already had to calculate for the customer...

And, after all, wasn't that the original goal of the IRS in allowing us to simplify the calculations - so we could more easily inform them, and they could therefore penalize anyone who didn't take the distribution?