Required Minimum Distributions For Boomers

Many seniors and boomers were hoping that congress would step in and postpone the required minimum distributions for 2008.  Although, they did not; last December “The Worker, Retiree and Employer Recovery Act of 2008” was signed into law.

According to the Act, boomers over 70½ or older will not be required to take a required minimum distribution (RMD) from their tax-deferred retirement accounts in 2009. Under normal circumstances investors over age 70½ are required to take an annual RMD or face a 50% penalty on the amount they should have withdrawn.  From my perspective, this is too little too late.  Since the distribution amounts are based on the last year’s ending value, more of a benefit would have helped boomers if congress had suspended more this year than next.

2009 RMD Rules

The 2009 RMD suspension applies to 401(k)s, 403(b)s, 457s, IRAs and other defined contribution plans. It also applies to any other circumstances where an RMD would be required such as an inherited IRA with an RMD. The benefit of this, of course; is that the money will be left invested to hopefully grow and get back closer to par.

More Benefits of The Act

  • RMDs for 2008 are still required, (if the account owner turned 70.5 in 2008, the required beginning date is 4/1/09, but it is still a 2008 RMD so no suspension)
  • RMDs resume in 2010, the calculation methodology does not change
  • The 5 year payout rule for beneficiaries that are not stretching over life expectancy becomes a 6yr rule
  • Required Minimum Distributions for 2009 from Defined Benefit Plans must still be made, as well as from 457(b) Top Hat Plans
  • 72(t) distributions are not impacted by this new law, they must continue until the longer of age 59.5 or 5yrs

What Should You Do?

Be sure to contact your financial planner or financial institution to make sure to suspend your distributions if you don’t need the money. Those most effected by this will be retirees that have automatic distributions in place. Don’t fret, though. If an RMD has already been taken for 2009, the account owner may be able to roll the amount back into the account if done within 60 days.

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