Tax Alert: New Law Suspends Required Minimum Distributions for 2009
12/24/2008
On December 23, 2008, President Bush signed the Worker, Retiree, and Employer Recovery Act of 2008. This legislation contains numerous pension related provisions including the suspension of Required Minimum Distributions (RMDs) for 2009.
Under the Internal Revenue Code, upon attaining the age of 70 1/2 individuals must begin receiving RMDs from their IRAs, 401(k) plans, and other retirement plans. The initial RMD must be received no later than April 1 of the year following the year that age 70 1/2 is attained. Annual distributions are required thereafter.
The RMD is computed based on life expectancy tables that are applied to the fair market value of the retirement account(s) as of the end of the prior calendar year.
Taxpayers required to receive RMDs during 2008 have had to receive distributions based on the much higher fair market value of their retirement plan asset portfolios that existed on December 31, 2007 as compared with the current values. Basing RMDs on the end of prior year plan values was never an issue when the stock market kept rising year after year.
Under this law, no individual is required to take any distribution from their IRA or any other retirement plan for 2009. However, a taxpayer who attained age 70 1/2 during 2008 has to receive their initial distribution by April 1, 2009 despite this law change, as that distribution is for 2008. Many taxpayers in this situation may have already received their initial distribution in 2008 thus no further action is required.
Despite this law change, many taxpayers understandably will take distributions from IRAs and other retirement plans during 2009 to provide necessary cash flow to cover their living expenses.
The 10 percent penalty for premature distributions taken from an IRA or other retirement plan prior to attaining age 59 1/2 has not been changed for 2009.
To find out how these changes impact you, contact your J.H. Cohn service professional at 877-704-3500.
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