NEW LAW RELIEF FOR 2009
By Michael A. Tolla, CPA
On December 23, 2008, President Bush signed the “Worker, Retiree and Employer Recovery Act” to provide some relief from the recent declines in the stock market for those required to receive required minimum distributions (RMD) from qualified retirement plans and IRAs in 2009. The hope is that those taxpayers whose retirement fund investment values have deteriorated substantially during 2008 and who can afford to wait, will defer their withdrawals until 2010 and allow their investments time to recover. This relief is not only for retirees but also for beneficiaries who must take minimum distributions from accounts they have inherited.
Under pre-Act law, the RMD was calculated each year using the value of the account at the end of the preceding year. An owner of a traditional IRA was required to start taking the RMD from his IRA account by April 1 of the year following the year in which he attains the age of 70 ½ and a participant in a qualified retirement plan was required to begin taking distributions by April 1 of the calendar year following the later of the year in which he: (a) reaches age 70 1/2 , or (b) retires (except for 5% owners, who are subject to the same rules as IRA owners). Also, failure to take the minimum distribution each year triggered a 50% excise tax.
Under the recently signed Act, no RMD is required for calendar year 2009. Thus, any minimum distribution that otherwise would have been required for 2009 need not be made. The next RMD will be for calendar year 2010.
EXAMPLE:
IRA owner John Smith attains age 70 ½ in 2009, which means his required beginning date is April 1, 2010. Under pre-Act law, the first year for which Mr. Smith would have to take an RMD from his IRA would be 2009 using the value of his account on December 31, 2008; that first distribution could be taken in 2009 or delayed until April 1, 2010. Normally, if Mr. Smith had delayed until April 1, 2010, he would have been required to take two distributions that year (one for 2009 and one for 2010). Under the Act, no RMD is required for 2009. Therefore, Mr. Smith need only take one distribution in 2010, based on the December 31, 2009, value.
Please contact us if you have any questions.
