The recently enacted Worker, Retiree, and Employer Recovery Act of 2008 contained a major item of interest for retirees. The provision provides relief to senior citizens by allowing them to continue to keep money in retirement accounts in 2009 that they are typically required by law to withdraw once they reach age 70 ½.
The tax laws generally require individuals with retirement accounts to make required withdrawals based on the size of their account and their age every year after age 70 ½. This rule is intended to prevent individuals from using retirement accounts as tax shelters. Any individual who fails to take a required minimum distribution (RMD) is heavily penalized by the IRS, which taxes the amount not withdrawn at 50%.
Because some retirees have seen their retirement savings shrink dramatically since September, the new law suspends the required minimum distributions from retirement accounts in 2009. This waiver, which is available to everyone regardless of their total retirement account balances, applies to all defined-contribution plans, including 401(k), 403(b), 457(b), and IRA accounts. Suspending the mandatory withdrawal allows retirees to keep money in their account if they choose, and possibly recover some of their losses.
If you have questions or would like more detailed information regarding this new legislation, please contact the experts listed below at (800) 270-9629.
WE ARE REQUIRED BY IRS CIRCULAR 230 TO INFORM YOU THAT THE FOLLOWING DISCUSSION WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, NOR RELIED UPON, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW. THE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THE DISCUSSION. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
