Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Wednesday, December 31, 2008

Minimum Distribution Rules for IRAs Changed

IraThe folllowing excerpts discussing the new IRA MRD rules are from Relief from Required Minimum Distribution Rules - But Only for 2009 , BracewellGiuliani.com, Dec. 30, 2008:

A recent tax law change promises to help give retirees and retirement plan beneficiaries some much needed flexibility in managing their finances during these trying financial times. A key provision in the recently passed Worker, Retiree and Employer Recovery Act of 2008 provides relief to retirees and others by allowing them to continue to keep more money in retirement accounts in 2009. The The Act provides relief only for 2009 distributions; Required Minimum Distributions for 2008 will still need to be made before Dec. 31, 2008. * * *

The 2008 Recovery Act provides a one year suspension of the RMD rules for 2009. Specifically, no minimum distribution is required for calendar year 2009 from Individual Retirement Accounts and defined contribution retirement plans (such as Section 401(k) plans). The exemption also applies to so-called Section 457(b) eligible deferred compensation plans maintained by a state, a political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state. Thus, any annual minimum distribution for 2009 from these plans is not required to be made. The next RMD will be for calendar year 2010. This relief (referred to as the "2009 RMD waiver") applies to life-time distributions to employees and IRA owners and after-death distributions to beneficiaries. * * *

The 2008 Recovery Act's suspension of RMDs for 2009 helps retired taxpayers who are well-to-do and do not need to rely on their RMDs for living expenses. By not making the RMD for 2009 (or withdrawing less than the RMD) from their qualified plan accounts and/or IRAs, they will wind up with less taxable income for 2009, and, possibly, avoid (or mitigate the effect of) AGI-based phaseouts of tax breaks. They will also have more tax-sheltered amounts to leave to their beneficiaries. Older recipients will benefit the most, because their (short) table-life expectancy factors would otherwise compel them to take large RMD payouts in 2009. 

From a nontax standpoint, those taxpayers that can afford not to take their 2009 RMD will have an opportunity to allow their investments to recover (if the market rebounds over the next 12 to 24 months) before having to sell assets in order to make withdrawals.

Note that these changes are for 2009, not the current year (2008).


New Legislation, Non-Probate Assets | Permalink

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