On December 23, 2008, former President Bush signed the Worker, Retiree, and Employer Recovery Act of 2008 (Act) into law. The Act waives any required minimum distribution (RMD) from qualified retirement plans with individual accounts (i.e. 401(k) plans, 403(b) plans and certain 457(b) plans) and Individual Retirement Arrangements (IRA) for 2009. The one-year waiver of RMDs means that most participants and beneficiaries who are otherwise required to take a RMD are not required to withdraw any amount for 2009. If a participant or beneficiary takes a withdrawal in 2009 (and the withdrawal is not a RMD for 2008), because the withdrawal is not a RMD, the individual may be able to rollover the amount into an “eligible retirement plans,” including an IRA.
The RMD rules generally require that an individual with an account balance in a qualified retirement plan or IRA must take a distribution from his qualified retirement plan or IRA by December 31 of the calendar year in which the individual reaches age 70-1/2 or retires, whichever is later. An individual can elect to delay receiving the first RMD payment until April 1 of the following calendar year. If an individual elects to delay the receipt of his first RMD payment, the individual will receive two RMD payments the following calendar year, the first RMD payment before April 1st and the second RMD payment before December 31st.
The Act does not waive any 2008 RMDs, even for an individual who was required to take his first RMD in 2008 and who chose to delay taking his first RMD payment until April 1, 2009. Such an individual still must take his RMD payment by April 1, 2009. The waiver under the Act does apply to an individual who may be eligible to delay taking his 2009 RMD payment until April 1, 2010. Also, if a beneficiary is receiving distributions over a 5-year period, he can now waive the distribution for 2009. This effectively allows the individual to take distributions over a 6-year rather than 5-year period.
The IRS recently issued Notice 2009-09 which modifies the reporting requirements applicable to RMDs from qualified retirement plans and IRAs for 2009. According to the Notice, issuers of the 2008 Form 5498, IRA Contribution Information, should not put a check in Box 11 [checking the box indicates that a minimum distribution is required in 2009] . However, in recognition of the short amount of time to make programming changes, if a financial institution issues a 2008 Form 5498 with a check in Box 11, the IRS will not consider such form issued incorrectly, provided the IRA owner is notified by the financial institution no later than March 31, 2009 that no RMD is required for 2009.
Additionally, the RMD information required under Notice 2002-72 need not be sent to IRA owners for 2009. If a financial institution sends a separate RMD statement to an IRA owner, either initially or in response to the owner’s request for the financial institution to calculate the RMD for 2009, the financial institution must show the RMD as $0. Alternatively, the financial institution may send the IRA owner a statement showing the RMD that would have been required for 2009, along with an explanation of the waiver for 2009.
The information may be accessed at: http://www.irs.gov/pub/irs-drop/n-09-09.pdf