RMD’s Put on Hold While Market Recovers

Nothing has made me more sick to my stomach lately than looking at my 401(k) balance. Lucky for me, I’m far enough from retirement that my account balance should have time to recover.

Because of the Required Minimum Distribution (RMD) rules, some taxpayers don’t have the luxury of waiting for their retirement account to “bounce back”.

IRS rules generally require individuals to withdraw a minimum amount from their retirement account each year after they have reached 70 ½ years old. Individuals who do not take the minimum distribution by December 31 are subject to a 50% tax on the RMD not withdrawn.

To provide relief to taxpayers who have seen the values of their retirement accounts drop during the recent economic downturn, congress has allowed for a one year suspension of RMDs for the 2009 calendar year.

Those taxpayers that can afford not to take their 2009 RMD will have an opportunity to allow their investments to recover and avoid having to sell assets in order to make withdrawals. From a tax perspective, individuals who do not take their RMD for 2009 will have less taxable income for the year and could possibly avoid or lessen the effect of certain AGI based phaseouts.

Unfortunately, the one year suspension will not benefit those taxpayers who must make regular withdrawals from their retirement plan accounts in order to pay for necessary living expenses.

If you have additional questions regarding this topic, please feel free to e-mail me at aprest@anderscpa.com.