As most of you are aware, IRS rules state that holders of IRAs, 401(K)s and other qualified retirement plans must withdraw a minimum amount from these accounts each year once the account owner reaches the age of 70½.  These Required Minimum Distributions (RMDs) are taxed as ordinary income to the account holder. Due to the severe market decline in 2008, there has been significant popular support for a temporary suspension of RMDs, in order to allow qualified account holders to avoid taking large distributions while the equity markets are at such low levels.

While the game is not officially over just yet, the outcome is fairly clear.  Congress has suspended RMDs for tax year 2009, but no change is expected to be made for tax year 2008. H.R. 7327, which passed the House on December 10^th and the Senate on December 11^th, was signed by President Bush on December 23^rd.  Among other things, this bill waives RMD requirements for 2009. Some Congressional spokespeople have claimed that they hoped that Treasury would provide relief for 2008, but late last week the Treasury Department stated:

The Treasury Department and the Internal Revenue Service have determined that any further change to the required minimum distribution rules should not be undertaken. The scope of Treasury's ability to make administrative changes has constraints. Thus, any steps Treasury could take would be substantially more limited than the relief enacted by Congress and could not be made available uniformly to all individuals subject to required minimum distributions. In addition, implementation of such changes would be complicated and confusing for individuals and plan sponsors. Thus, all individuals who are subject to required minimum distributions for 2008 should take their distribution under the existing rules and, as a result of relief provided by Congress, they will be entitled to a complete waiver of the requirement to take any distributions for 2009.

In other words, the rules for 2008 will not change because it would be too confusing at such a late time in the year and because it would be unfair to those who have already taken their distributions; therefore, all RMDs for 2008 must be made.

If you had previously planned to take regular distributions from a qualified account in 2009, you may want to reconsider.  Since most qualified distributions are taxable, there may be a more tax efficient source of funds. For those of you who do elect to take distributions from qualified plans in 2009, the tax rules will remain as they were before.

Please contact us if you would like to discuss your 2009 IRA distribution, or if you have any other questions regarding this legislation. We hope everyone is enjoying the holiday season.

Archives