Progressions Credit Union

Nest Egg Withdrawal Rules Change—But Only for 2009

by Jan Garkey



If you're age 70˝ or older, you can take advantage of legislation passed at the end of 2008 that suspends required minimum distributions (RMDs) from IRAs (individual retirement accounts) and traditional 401(k)s. The suspension is only for 2009 and is available to everyone, regardless of their total retirement account balances.

Normally, IRA owners must take a minimum annual amount from traditional IRAs beginning in the year they become age 70˝. The RMD calculation is based on your age—the older you are, the more you must take out—and the IRA or 401(k) balance at the end of the previous year. If you fail to take the RMD, you'll incur an excise tax of 50%. Example: If you were supposed to take $8,000 and didn't, you'd owe a $4,000 penalty.

To help taxpayers with battered investment portfolios, the legislation waives RMDs for 2009. This means you can leave your nest egg alone this year—if you can afford to—so you can recover some recent investment losses.

Remember: RMDs don't apply to Roth IRAs or Roth 401(k)s while the owner is living.

Even though RMDs are waived for 2009, your provider may continue to make payments to you. If you choose to take advantage of the suspension, make sure you follow these rules:

  • Contact your provider and request that the payment be suspended.

  • If you turned 70˝ in 2008 and delayed your first year's payment until April 1 of 2009, you're not off the hook; you still must receive the delayed 70˝ year payment by April 1, 2009.

  • Beneficiaries of inherited traditional and Roth IRAs and retirement plan benefits also get the same limited reprieve—just for 2009—from receiving required minimum distributions.

  • The distribution deadline for beneficiaries receiving payments over the five-year RMD will be postponed by a year if the five-year period includes 2009; for example, if the owner died in 2007, the end of the five-year period will be December 31, 2013 instead of December 31, 2012.

    Contact your provider and ask about the requirement to waive the 2009 RMD. If you don't take any action, your provider may send you a distribution you aren't required to receive.

    Neither CUNA nor the author of this article is a registered investment adviser. Readers should seek independent professional advice before making investment decisions.

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    Published March 16, 2009, Reviewed December 16, 2009



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    Printed Tuesday, November 24, 2009

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