2009 RMD Waiver Relieves Retirees in a Down Market.

George Bush enacted the RMD waiver into law in December 2008 under the Retiree and Employer Recovery Act when the financial crisis was at its peak and stock portfolios held in IRAs and other tax deferred retirement accounts were at its lowest values. An RMD or required minimum distribution is the amount an account holder must withdraw in order to pay taxes.  Of course one may withdraw more in order to meet living expenses and medical bills and other such necessities or luxuries.

This requirement begins in April of the year one turns 70 ½.  The money must be withdrawn by December 31.  If the RMD is not withdrawn, then a 50% penalty is imposed on the amount that was not withdrawn.    The RMD is basically how the government ensures that it receives taxes on your retirements accounts that were allowed to accumulate and gain value tax free.  It’s a revenue stream that helps pay for all the wonderful services we receive as U.S. citizens.  The RMD only applies to IRAs and employer sponsored retirement plans such as 401k and 403b plans.  If you own a Roth IRA, you do not have to worry as the money used to fund this type of account has already been taxed and therefore exempted from this requirement and obviously waiver.

The IRS determines your required minimum distribution based on your life expectancy and the balance in your retirement account.  Your accountant can tell you what your RMD should be.  You can also find your RMD at IRS.gov.  Many financial and retirement related websites also have retirement calculators for RMD.  Just Google RMD calculator.  Retirees have benefitted from the 2009 RMD waiver because it allows them to recover some or hopefully all of the losses endured in 2008.  Absent a waiver, a retiree would have had to make a withdrawal on a lower account balance and force to take losses.  Instead with the waiver, one will likely have a lower taxable income while enjoying the potential of having account values (including the RMD not withdrawn) grow once again with the thriving stock market.  As a result, some may benefit by not having to pay taxes on social security income as well.

Don’t expect the waiver to be extended to 2010.  The growing sentiment that the U.S. economy is out of danger and the 50%+ advance in the stock market has the administration and the IRS preferring to get its portion of taxes from retirement accounts.  That said the resumption of 2010 RMD will be based on account balances as of December 31, 2009.  If you turned 70 ½ this year you would have had the privilege and responsibility of taking your first distribution if there was not a waiver.  Make certain for 2010 you do it (your RMD) by December 31, 2010.  If you already took a distribution this year, you have the option of putting that money back into your IRA as long as you do it by November 30, 2009.  Please discuss this matter with a tax or financial planner to ensure compliance with IRS requirements.