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"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.

"Tax software is no substitute for tax knowledge."

Any views expressed herein are based on our best information. The content of this web site was written as general information without specific individual information and thus may not apply in all situations. This material was not written, and cannot be used by the taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.

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Janelle Ogg, EA
Richard Ogg, EA