In a move that is probably coming a year too late, the IRS has decided to allow certain taxpayers to suspend their Required Minimum Distributions (RMDs) for tax year 2009. This is a move that will allow IRA investments to hopefully recover some lost value if the markets show some improvement this year, instead of forcing withdrawals out of accounts in a declining investment environment, which is the worst possible time to be pulling out money. 

It is best to speak with your tax or financial advisor to see if you qualify and to see if you would benefit from this rule change.

Here are the basics of the change, per the IRS (http://www.irs.gov/pub/irs-tege/rne_se0109.pdf)

On December 23, 2008, the President signed the Worker, Retiree, and Employer Recovery Act of 2008 (the Act) into law. Section 201 of the Act waives any required minimum distribution (RMD) for 2009 from retirement plans that hold each participant’s benefit in an individual account, such as 401(k) plans and 403(b) plans, and certain 457(b) plans. The Act also waives any RMDs for 2009 from an Individual Retirement Arrangement (IRA). This means that most participants and beneficiaries otherwise required to take minimum distributions from these types of accounts are not required to withdraw any amount in 2009. If they do make a withdrawal in 2009 (that is not a RMD for 2008), they might be able to roll over the withdrawn amount into other eligible retirement plans. Of course, they must still include any previously untaxed portion of the withdrawal that they do not roll over in their gross income. See Individual Retirement Arrangements (IRAs), Publication 590, and Pension and Annuity Income, Publication 575, for additional information on rollovers and on calculating the taxable portion of a withdrawal or distribution.

The Act does not waive any 2008 RMDs, even for individuals who were eligible and chose to delay taking their 2008 RMD until April 1, 2009 (e.g., retired employees and IRA owners who turned 70½ in 2008). These individuals must still take their full 2008 RMD by April 1, 2009, or they might face a 50% excise tax on the amount not withdrawn. The 2009 RMD waiver under the Act does apply to individuals who may be eligible to postpone taking their 2009 RMD until April 1, 2010 (generally, retired employees and IRA owners who attain age 70½ in 2009). However, the Act does not waive any RMDs for 2010.

If a beneficiary is receiving distributions over a 5-year period, he or she can now waive the distribution for 2009, effectively taking distributions over a 6-year rather than a 5-year period.

This blog is a service of Astrab Legal Services LLC and is intended for informational purposes only and does not constitute legal, financial or tax advice.  As always, please consult your legal, tax or financial advisor for the specifics of your particular situation.