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New Law: No Required Minimum Distribution from Your Retirement Accounts in 2009

If you or someone in your family is 70½ or older (or will be this year), or if you have inherited a loved one’s IRA or other retirement plan, here’s important news:  A recent law waives the requirement that you must take a required minimum distribution from your retirement accounts. This includes 401(k) plans, 403(b) plans, certain 457(b) plans, and IRAs.

Normally, those 70½ or older must take a minimum required amount from their retirement accounts every year or face a 50% penalty tax on the amount required to be withdrawn but not taken. The required amount is calculated based on the owner’s life expectancy and the retirement account balance as of December 31st of the previous year.

This provision is Congress’ way of saying that because your retirement account may have suffered losses in the recent downtown, you will not be forced to sell at the bottom.  However, if you need the distribution to live on, then this provision does not help you at all.  This provision is only helpful to those who do not need the required minimum distribution.  In those cases, this relief allows for an additional year of tax deferred compounding.

FYI:  This provision is only effective for 2009, and will probably not be extended.

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