Last Updated: December 19, 2008
IRA owners who are don't want or need to take a required minimum distribution (RMD) in 2009 just got an early holiday present. Congress approved in December legislation that provides relief to older Americans who are required to make retirement account withdrawals after age 70½. The "Worker, Retiree, and Employer Act of 2008" places a one-year moratorium on required minimum distributions for 2009.
President Bush is expected to sign the bill. Much of the legislation relates to pension plan funding requirements, according to a report published by Forefield. "However, one of the most significant provisions in the legislation is the temporary suspension of required minimum distributions (RMDs) for 2009 from IRAs and employer plans," Forefield wrote. "The Act does not, however, make any changes to 2008 RMDs, which generally must be taken no later than December 31, 2008 (April 1, 2009, for account owners who turned age 70½ in 2008)."
According to Steve Leimberg's Employee Benefits and Retirement Planning Newsletter, "this relief applies to participants in and beneficiaries of IRAs, SEP-IRAs, SIMPLE IRAs, 401(k) plans, money-purchase plans, profit-sharing plans, and any other defined contribution retirement plan not specifically mentioned here. The relief does not apply to defined benefit plans."
From a financial planning point of view, FPA member Michael Kitces, CFP®, publisher of The Kitces Report, noted "that any 2009 RMD would be calculated on the now-reduced December 31, 2008 account balance, thereby already avoiding the 'mismatch' of an RMD for the year based on a significantly higher account balance – unless, of course, the market continues to decline significantly again in 2009."
"Beyond that, the economic value itself is somewhat limited, because the opportunity to avoid RMDs does not eliminate the taxation on such a withdrawal — it merely delays," he was quoted as saying Leimberg's newsletter.
Also of note, Ed Slott, editor of Ed Slott's IRA Advisor, said the provision applies to all RMDs from IRAs and employer plans for account owners and beneficiaries. This temporary suspension will not affect an individual's required beginning date, Slott said. "An individual who turns 70 ½ in 2008 and chooses to defer their first distribution to April 1, 2009 must still take that distribution."
