One of the last acts of the recent Congress, the “Worker, Retiree, and Employer Recovery Act of 2008” that was signed into law by President Bush on December 23, 2008, included a temporary one-year waiver of required minimum distributions (RMD) from IRAs and most defined contributions plans offered by an employer. These include traditional individual retirement accounts (IRAs), simplified employee pension (SEP) IRAs, savings incentive match plan for employees (SIMPLE) IRAs, inherited IRAs (including inherited Roth IRAs), defined contribution plans (401(k) plans, profit sharing plans, and money purchase pension plans), as well as 403(b) custodial accounts. In general, there is no distribution requirement for non-inherited Roth IRAs. The special waiver is in effect only for distributions that would have been required for 2009.

At the outset, the reader might be cautioned that there’s rarely anything drier than a missive throwing around retirement acronyms, age thresholds, calendar dates and tax consequences… it can become quickly confusing, to the point of inducing narcolepsy. “Forewarned is forearmed,” as the saying goes… we’ll give it our best shot in explaining the current landscape. If you’re still “in the dark” thereafter, the fault rests with us, not you—by all means, give us a call and we’ll attempt to clarify.

Thanks to the new law, anyone turning 70½ this year will be able to avoid taking the required minimum distribution for the 2009 calendar year; it should be pointed out, though, that those same individuals must take their 2010 RMD by December 31, 2010, rather than delaying that withdrawal until April 1, 2011 (as has been the typical option in the past). And as the Act applies in another instance, age specificity plays no role: if you have an inherited IRA and are taking money out under a five-year deadline, you can skip your withdrawal in 2009, effectively stretching your deadline out another year.

It is important to remember that the waiver does not apply to last year’s 2008 RMD for all who achieved age 70½ during that timeframe—everyone of that age, and beyond, must be certain to abide by the rules and take their required distribution for 2008 by April 1, 2009 to avoid a significant penalty. But, for 2009, those people have the same choice cited above—delay their 2009 RMD up until December 31, 2010.

And in the interest of clarity, anyone falling in the aforementioned categories may choose to exercise their normal distribution. Should they, however, elect the one-year waiver, the following benefits might accrue:

• Eliminate, for 2009, the tax impact of taking distributions from your IRA.
• Keep your retirement plan assets intact for an additional year, and profit from a potential stock market rebound.

Now is a good time to plan the most appropriate actions for 2009, as it relates to your IRAs and workplace savings plans (401(k)s, 403(b)s, etc.), where such distributions are required. Hardesty Capital Management can work with you and any tax advisor in plotting the most tax-efficient strategy, based upon your income needs and cash flow.

For all of our clients reading this, please note that if you previously requested a schedule of systematic payments from your IRA, they will continue unless you contact us with instructions to change or suspend the payments.