The recently passed Worker, Retiree and Employer Recovery Act provides that, for calendar year 2009 only, retirement plan participants and Individual Retirement Account (IRA) owners don't have to take otherwise mandated lifetime required minimum distributions (RMDs) for that year. It was hoped that Congress or the IRS would provide relief from the RMD rules for 2008. But the IRS has announced that it will provide no relief ? eligible taxpayers must take RMDs from their retirement accounts for 2008.
Background
An owner of a traditional IRA must start taking RMDs from the IRA by April 1 of the year following the year in which the owner attains age 70½. A participant in a qualified retirement plan (a 401(k) plan, for instance) generally must begin taking minimum distributions by April 1 of the calendar year following the later of the year in which the participant: (a) reaches age 70½ or (b) retires (except for 5% owners of the employer, who are subject to the same rules as IRA owners). RMDs for a year after the first RMD must be taken by December 31 of that year.
The RMD for each year from IRAs or qualified defined contribution plan accounts is determined by dividing the account balance as of the end of the preceding year by the life expectancy factor from tables in government regulations. So, for 2008 RMDs, taxpayers must use the account balance as of the end of 2007.
The Problem
The stock market's decline in 2008 has had an adverse impact on retirees whose retirement plan accounts and IRAs are invested in stocks or stock mutual funds. Because, in many cases, their retirement plan and IRA balances at the end of 2007 were much larger than their balances in 2008, retirees have been faced with having to withdraw a disproportionately large portion of their remaining account balances and being forced to sell stock or mutual fund shares when their value is depressed.
The Bottom Line
So, while the new law?s RMD relief allows retirees flexibility with their 2009 withdrawals, the problem remains with having to take 2008 RMDs when account balances may be severely decreased from end-of-2007 levels. Taxpayers who were holding off on taking RMDs for 2008, counting on relief from the rules, are now warned to take their RMDs on time (either by December 31, 2008, or, if the first RMD, by April 1, 2009).
If we can be of assistance to you with respect to your required minimum distribution requirements, let us know.
