Nest Eggs Get a Break--But Only for 2009

If you're age 70 ½ or older, you can take advantage of legislation passed at the end of 2008 that suspends required minimum distributions 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 ½. 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 in addition to any normal tax on the $8,000.

To help taxpayers with battered investment portfolios, the legislation allows you to ask that your RMD be suspended 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 because those withdrawals are not taxable.

If you take advantage of the suspension, make sure you follow these rules:

  • If you choose to take advantage of the new law, you must voluntarily request that the payment be suspended.

  • If you turned 70 ½ in 2008 and planned to take your first withdrawal by April 1 of 2009, you're not off the hook; you're still bound by the rules effective for 2008 withdrawals.

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

  • For required minimum distributions under the five-year rule, the five-year period is determined without regard to calendar year 2009. For example, if the person died in 2007, the end of the five-year period is 2013 instead of 2012.

Contact an HUECU representative today and ask about the requirement to waive the 2009 amount. If you don't take any action, you'll continue to receive the distribution. For more information on this or any of our other products and services, you can contact Ellen Addelson at 617-495-1711.

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