Friday, January 9, 2009

No Required Distributions from Retirement Accounts in 2009

Required Minimum Distributions (RMDs) from certain retirement accounts have been suspended for 2009 only with the signing of the Worker, Retiree, and Employer Recovery Act of 2008 by President Bush on December 23.

This is important news for retirees because it suspends -- for 2009 only -- the IRS regulation that generally requires individuals, beginning in the calendar year following the year they turn 70½, to withdraw a minimum amount of money from their retirement accounts (like Traditional IRAs and 401(k)s) each year. This is called a "required minimum distribution" (RMD).

Key details about suspended 2009 RMDs

The minimum distribution suspension applies to individual retirement accounts and employer-sponsored qualified retirement plans. Examples of these accounts: Traditional IRAs, Rollover IRAs, SEP IRAs, Inherited IRAs, Inherited Roth IRAs, 401(k)s, and 403(b)s (It does not apply to non-inherited Roth IRAs - they do not have mandatory distributions anyway).

If you are turning 70½ in 2009, you will not have to take your first distribution by April 1, 2010. You will, however, have to take a 2010 RMD by December 31, 2010.

If you have a 2009 RMD automatically scheduled

If you do not want to take monthly distributions, please let us know, and we can stop them at Fidelity/Schwab for 2009. The good news: If you do end up taking the distribution by mistake, it can be rolled back into your retirement account without penalty - as long as it is put back within 60 days.

If you have an Inherited IRA

The rules above for retirement accounts also apply to inherited IRAs (regularly IRAs and Roth IRAs). Distributions for 2010 will continue with same schedule of life expectancy factors. Thus if the life expectancy factor in 2009 was 25.6, then in 2010, the life expectancy factor would be 24.6.

If you are over 70½ and rolling over an employer-sponsored account

No RMDs will be required from retirement plan accounts that are rolled over to IRAs in 2009. Normally, if you are 70½ and older, you must take a RMD before rolling over to an IRA. Because RMDs are suspended for 2009, you will not need to take that RMD.

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