Required minimum distributions (RMDs) from individual retirement accounts (IRAs) have been suspended for 2009 pursuant to recently enacted legislation commonly known as the Worker, Retiree, and Employer Recovery Act (the Act). This is good news for retirees because they can elect to suspend, for 2009 only, the requirement that individuals withdraw a minimum amount of money from their IRAs each year. In general, the first RMD must be taken by April 1 following the calendar year in which the person attains age 70½. The distribution for the year after the person attains age 70½, and each year thereafter, must be taken by December 31.
The provisions in the Act do not affect 2008 RMDs. This can be confusing for those who attained age 70½ in 2008 and are taking their first RMD in 2009 (instead of by December 31, 2008) as permitted by IRS regulations. They still must take the 2008 RMD by April 1, 2009 (failure to do so will result in a 50-percent excise tax on the amount that was not withdrawn). However, the 2009 RMD for those who attained age 70½ in 2008 or earlier (which otherwise must be taken by December 31) is suspended.
Taxpayers attaining age 70½ in 2009 will not be required to take their first RMD distribution by April 1, 2010; instead, they will need to take their 2010 RMD by December 31, 2010. Those who have already commenced their RMDs will not be required to take their 2009 RMD.
The RMD suspension applies to IRAs that include traditional IRAs, rollover IRAs, Simplified Employee Pension (SEP) IRAs and inherited IRAs. Roth IRAs are not subject to RMD rules.
For taxpayers who inherited an IRA being distributed to them over a five-year period, the suspension, if elected, has the effect of extending the period for an additional year. For example, if the taxpayer inherited an IRA from an individual who died in 2006, and elected to suspend the 2009 RMD, the five-year distribution period for that IRA will end in 2012 instead of 2011.
For those who have already received their 2009 RMDs, there is good news. The 2009 RMD may be rolled back into an IRA without penalty.
Although the 2009 RMD suspension also applies to employer-sponsored tax-qualified retirement plans, the Act does not require employers to amend their plans to provide for such RMD suspensions. Since employers interested in the 2009 RMD suspension would have to amend their plans and, thereafter, administer their plans in accordance with the new RMD suspension rules, it is uncertain at this time as to how receptive employers will be to these additional costs and administrative burdens.