In late December Congress passed the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) which, among other things, repealed the Required Minimum Distribution (RMD) for IRA’s. This only affects the 2009 RMD! If you turned 70 1/2 in 2008, you will still need to take your RMD by April 1, 2009. If you turn 70 1/2 in 2009, you will not be required to take the RMD because it pertains to the 2009 tax year. The waiver will also apply to an inherited retirement account where the owner dies in 2009. Unfortunately, the RMD waiver does not apply to 72(t) recipients, those who are taking “early” withdrawals under the equal periodic payment rules.
The RMD waiver was enacted to help owners from being forced to liquidate equities in a down market. Unfortunately, it won’t entirely meet its goal. The time to give RMD relief was in 2008, when owners were taking RMD’s calculated on the higher balances as of 12/31/2007. The 2009 RMD’s would have been calculated on the much lower balances in accounts as of 12/31/2008. Also, RMD’s can always be paid out “in kind,” meaning the owner can transfer out equities without having to liquidate them. Of course, if you need to live on your RMD, the waiver won’t help you at all.
Generally speaking, if you don’t need your RMD and you still have taxable income, our recommendation is to suspend the distribution. However, if you have no or very little income, don’t pass up a chance to take a distribution that would be tax free. Be sure you visit with your accountant about this, soon.