A bill that has passed the U.S. House and Senate, and which is expected to be signed by the President, allows taxpayers to not take their Required Minimum Distributions out of their IRA’s or other retirement accounts in 2009.
Typically, in the year when a person who has IRAs or other retirement accounts turns 70 ½ they must begin to take Required Minimum Distributions (RMD) from those accounts. Each year thereafter they must take a slightly larger percentage of their assets out of those accounts. If the person with the IRA doesn’t take their RMD, they are assessed a hefty penalty. The bill that recently passed the U.S. House and Senate, H.R. 7327, eliminates the penalty for not taking a RMD in 2009. The intent of HR 7327 is to help taxpayers by not forcing them to withdraw money from their retirement accounts which may have lost significant value because of the recent downturn in the economy. Additionally, people who were subject to the “five-year rule” for withdrawals, and are within their “five years,” will not be forced to withdraw funds in 2009 and the timeframe to complete their withdrawals will be extended by one year.
This law provides and opportunity for people who don’t need to take an RMD, but are required to because of their age, to allow their retirement accounts to recover during 2009 before taking their required minimum distributions again in 2010. Please remember this important change before determining whether or not you will take money out of your IRA or retirement account in 2009.
Lastly, this change is only for 2009, not for this year, so don’t forget to take your RMD for 2008.
I don’t understand the rollover provision (H.R. 7327 Sec 201(b)). It seems to say that you must still take an RMD before doing a rollover from a 401(k) to an IRA?
It does not necessarily mean that you will have to take an RMD before rolling over. However, If you rolled to an IRA in 2009 and that rollover would not have been “eligible” but for the 2009 RMD change, then the same rules for a non-eligible rollover apply and you would have to pay the income tax on the rollover. If the rollover is otherwise “eligible” then it would still qualify as a rollover and you wound not pay income tax as a result of the rollover.
Am I limited to withdrawing the amount I normally would have withdrawn for 2009 or can I withdraw an additional amount tax free? Thanks
There is no “tax free” when it comes to IRA’s. This change is simply designed to help those IRA owners who have seen significant losses to those accounts by allowing the market to correct itself over the coming year. (Whether it actually will is another matter.) In IRA’s you can withdraw whatever you want to. However, with some rare exceptions, it will ALL be taxable at your income tax rate.