"Required Minimum Distribution" (RMD) Relief
On December 10 and December 11 Congress approved the Worker, Retiree and
Employer Recovery Act of 2008 (HR 7327) by unanimous consent.
It is expected that President Bush will sign the bill.
Impact
This bill allows those over age 70 1/2 to not remove their required minimum
distribution from their retirement accounts in 2009 with no tax penalty.
(There are other impacts on large pension plans not addressed here.)
Background
Once a person reaches age 70 1/2 they are required to remove a portion of their
retirement monies in tax-deferred accounts each year.
(This is not requried for Roth accounts.)
These monies constitute taxable income,
therfore resulting in income taxes due.
If a person fails to take the required distribution there is a tax penalty
equal to 50% of what the distrubtion should have been.
This is a very steep penalty to ensure compliance.
Given recent events in the financial markets, many people have seen a significant
reduction in the value of their retirement account(s). Forcing a withdrawal when
the underlying securities have lost significant value can put the longevity
of the account at risk. Therefore not requiring this distribution could provide
help to some of these people.
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