If you’re in your 70s and have a retirement account, then you’re probably familiar with the term "required minimum distribution," or RMD. This rule meant individuals had to withdraw a certain amount of money from their retirement accounts, even if they didn’t need it and would have preferred to let it continue to grow.
But with so many retirement accounts having lost significant value, the government has seen fit to change the rules.
In the past, retirement account owners at least age 70 ½ have been required to withdraw RMDs by April 1 of the following year. Not taking a RMD would result in the retirement account owner having to pay a 50% excise tax on any required minimum not paid within the required deadline.
With the passing of the Worker, Retiree and Employer Recovery Act of 2008, the penalty for not taking an RMD from retirement accounts for individuals 70 ½ or older will be waived for 2009.
At the end of 2008, most American retirement accounts fell significantly, creating a few unique problems. First of all, the 2008 RMD was based on the Dec. 31, 2007 value for all retirement accounts. Investors that waited until the final quarter of 2008 may have been faced with a portfolio that was 50% of the prior year's value and may have had to liquidate assets at historically low prices to raise the cash to pay taxes.
This relief applies to RMDs due to be paid out to satisfy the 2009 RMD requirement and applies to the following plans: individual retirement accounts (IRAs), 401(a), 401(k), 403(a), 403(b) and governmental 457(b) plans. There are several benefits to participants and IRA owners over age 70 ½. Here are the main considerations:
1. Any individual who attains age 70½ in 2009 will not be required to take a first RMD by April 1, 2010. However, the distribution for the 2010 calendar year must be taken by Dec. 31, 2010.
2. Those over age 70 ½ may keep more money in their retirement plans for a longer period of time.