On December 23, I wrote an article for Money&Markets that talked about a possible suspension of required minimum distributions for retirees.
Well, on that very same day, and off most investors’ radar screens, that legislation did pass.
What this means is that anyone over age 70 1/2 does not have to withdraw money from their retirement accounts in 2009.
What’s the reasoning? Well, Congress doesn’t want to force people to have to cash out while investments are down and out.
That’s great … and it’s even better for anyone who’d rather leave their money in tax-sheltered accounts no matter what the markets are doing!
I suggest you take advantage of this temporary reprieve if possible.
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{ 6 comments… read them below or add one }
Where is this law? My dad enquired & couldn’t get any info from the IRS or his congressman.
Nilus Mattive Reply:
February 10th, 2009 at 4:29 PM
Hi, Smitty. It’s yet another case of a major change taking place and no one bothering to tell us common folk.
If you want an official announcement, you can find it here.
And if you want more information on this change, along with plenty of others that are in the works … keep an eye out for the new Retirement Report that I will be releasing later this month.
It’s going to contain information on that, along with ways to maximize Social Security benefits, build a simple ETF retirement portfolio, and a whole lot more.
Because as your question demonstrates … straight, simple information on retirement is hard to come by these days, even though this is precisely the time that it is most needed.
I have lost almost $80,000 in my 401K & Retirement plans which are still invested at Schwab under my former employer’s (an investment management company, but not one that’s been in the news with bad press). These assets are invested in what they call Lifepath funds 2020 & 2030. These are supposed to represent investment risk levels. I’ve been sitting tight this whole year, considering that I don’t plan to access either of these accounts for at least 5 or more years. My question is: should I move my investments from these “balanced” funds, eat this huge loss and find better investments for what’s left of my assets or stick tight as I have? Also, if you think I should move my investments now, should I move the funds out from under my former employer’s umbrella investment plans? They offer Large Co., Small/Mid Co., Intl/Global, Real Estate, Bonds, and the balanced funds I am currently in.
Nilus Mattive Reply:
February 11th, 2009 at 12:38 PM
Christa, unfortunately I cannot provide individual investment advice to you. However, I can make some general statements that might help.
First, if you were planning on tapping these investments within 5 years (i.e. 2014), then the lifecycle funds geared for 2020 and 2030 could be too aggressive for you. At this point, that’s water under the bridge. Just be aware that they are likely heavily weighted toward equities and aggressive.
Second, I don’t think now is the time to pull everything out of the markets. At the same time, there are clearly better and worse places to be in each category (stocks, bonds, etc.).
Third, what to do with an old employer’s plan is a matter of preference. But I generally suggest moving the assets into an IRA, which gives you the maximum number of investment options.
For more on all this, I humbly suggest you take a look at the new retirement report I’m working on. It will be going to press on March 2. Watch your e-mail inbox for more information on how to get a copy.
I have both, a 401k account, and a standard IRA annuity account.
Is an RMD required to be taken from both account balances?
So far the experts? handling my 401K account, company
sponsored, but no matching contribution, haven a clue.
Having turned 70 1/2 in 2008, I am still required to take an RMD
prior to April 1, 2009. While I am aware of the new law, a question
now remains as to whether or not I can skip a 2009 RMD, as it will
not be my first RMD, or does the new law specifically apply to all over
the age of 70 1/2, needing to take an RMD for the year 2009, whether
it is their first RMD or not?
Next just what is the IRS formula to determine the RMD amount,
and is it a gross figure without allowance for a nominal Federal tax
witholding.
Nilus Mattive Reply:
February 11th, 2009 at 1:42 PM
Hi, Frank. I’m not able to give detailed, individual advice. But here’s information direct from IRS Notice 2009-9 (I’ve highlighted the parts that I think answer your questions):
On December 23, 2008, the President signed the Worker, Retiree, and
Employer Recovery Act of 2008 (the Act) into law. Section 201 of the Act waives
any required minimum distributions (RMDs) for 2009 from retirement plans that
hold each participant’s benefit in an individual account, such as § 401(k) plans
and § 403(b) plans, and certain § 457(b) plans. The Act also waives any RMD
for 2009 from an Individual Retirement Arrangement (IRA). This means that
most participants and beneficiaries otherwise required to take minimum
distributions from these types of accounts are not required to withdraw any
amount in 2009. If they do make a withdrawal in 2009 (that is not an RMD for
2008), they might be able to roll over the withdrawn amount into other eligible
retirement plans. Of course, they must still include any previously untaxed
portion of the withdrawal that they do not roll over in their gross income. See
Individual Retirement Arrangements (IRAs), Publication 590, and Pension and
Annuity Income, Publication 575, for additional information on rollovers and on
calculating the taxable portion of a distribution.
The Act does not waive any 2008 RMDs, even for individuals who were
eligible and chose to delay taking their 2008 RMD until April 1, 2009 (e.g., retired
employees and IRA owners who turned 70½ in 2008). These individuals must
still take their full 2008 RMD by April 1, 2009. The 2009 RMD waiver under the
Act does apply to individuals who may be eligible to postpone taking their 2009
RMD until April 1, 2010 (generally, retired employees and IRA owners who attain
age 70½ in 2009). However, the Act does not waive any RMDs for 2010.
Regarding the IRS formula for RMDs, you can find the tables and worksheet in Publication 590 (this is the 2007 version).
There may also be other interesting ways for you to tweak your retirement plan. You might want to check out the new retirement report I’m working on now. It will go to press on March 2, and includes ways to boost Social Security payments, pass along tax-sheltered wealth to heirs, and a whole bunch of other great tips and tricks.