Required minimum distribution relief in the Worker, Retiree, and Employer Recovery Act of 2008
A recent tax law change promises to give older Americans some much needed financial flexibility as the struggle to manage their finances during this difficult economic time.
A key provision in the recently passed Worker, Retiree, Employer Recovery Act of 2008 is designed to help alleviate the financial burden facing seniors who have seen their retirement savings shrink dramatically. The new provision provides relief to senior citizens by allowing them to continue to keep money in retirement accounts that they are typically required by law to withdraw once they reach age 70 1/2. Here's a brief summary of this new provision.
As you know, the tax laws generally require individuals with retirement accounts to make withdrawals every year after age 70 1/2 based on the size of their account and on their age. This rule is intended to prevent wealthy individuals from using retirement accounts as a tax shelter. Any individual who fails to take a required minimum distribution (RMD) is heavily penalized by the IRS, which taxes the amount not withdrawn at 50%.
The new law suspends the required minimum distribution from retirement accounts in 2009. This waiver, which is available to everyone regardless of their total retirement account balances, applies to all defined-contribution plans, including 401(k), 403(b), 457(b), and IRA accounts. Suspending the mandatory withdrawal allows retirees to keep the money in their account if they choose, and possibly recover some of their losses.
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