En­joy year RMD hol­i­day

The Covington News - - Sports - Stu­art Hamil­ton Fi­nan­cial Ad­vi­sor

Al­though it sounds strange, you may en­counter sit­u­a­tions in which you have to ac­cept money even if you’d rather not. Such is the case with re­quired min­i­mum dis­tri­bu­tions from your tra­di­tional IRA, 401( k) or other em­ploy­er­spon­sored re­tire­ment plan. But thanks to re­cent leg­is­la­tion, you can ig­nore the “ re­quired” part of RMDs — at least for a year.

Specif­i­cally, law­mak­ers re­cently placed a oneyear mora­to­rium on tak­ing RMDs for 2009. If you’re not fa­mil­iar with the rules gov­ern­ing RMDs, here’s a lit­tle back­ground: Gen­er­ally, the IRS re­quires you to be­gin tak­ing RMDs in the year in which you turn 70-1/ 2, or no later than April 1 of the fol­low­ing year. For ex­am­ple, if you turn 70-1/ 2 in 2009, you would nor­mally be re­quired to take your first RMD by April 1, 2010.

You must also think about RMDs if you are a ben­e­fi­ciary of some­one else’s IRA, 401( k) or other re­tire­ment ac­count, be­cause when the ac­count owner dies, re­gard­less of age, you must gen­er­ally be­gin tak­ing RMDs. And this is also true if you are the ben­e­fi­ciary of a Roth IRA, even though Roth IRA own­ers are never re­quired to take RMDs.

But thanks to the new leg­is­la­tion, you can skip the re­quired 2009 dis­tri­bu­tion if you reach 70-1/ 2 in 2009 or if you’re a ben­e­fi­ciary cur­rently re­quired to take RMDs.

You also have un­til Dec. 31, 2010, to ac­cept the 2010 RMD, which will be based on your re­tire­ment ac­count bal­ance at the end of 2009.

Why did Congress de­cide to pro­vide this RMD “ hol­i­day” for 2009? For the an­swer, you need look no far­ther than your IRA or 401( k) ac­count bal­ance. As you are well aware, 2008 was not a stel­lar year for the stock mar­ket. Con­se­quently, as 2008 draws to a close, the mar­ket value of your IRA or 401( k) is prob­a­bly con­sid­er­ably lower than it was in ear­lier years. This could have been a prob­lem for you if you had to start tak­ing RMDs in 2009, be­cause th­ese dis­tri­bu­tions are based, in part, on your ac­count bal­ance at the close of the pre­vi­ous year — which means you may well have had to sell some stocks or other in­vest­ments in your re­tire­ment plan when their price was down. To help peo­ple avoid hav­ing to “ sell low,” Congress acted.

Ul­ti­mately, you will have to end up tak­ing dis­tri­bu­tions again. But be­fore that hap­pens, take some time to de­cide how large a dis­tri­bu­tion you should ac­cept each year. If you need the money, you might have to take out more than the RMD.

But if you can get by on just the min­i­mum dis­tri­bu­tion, you may want to do so. Tak­ing the min­i­mum will keep as much of your re­tire­ment ac­count as pos­si­ble in a tax-de­ferred ac­count.

But for now, if you have any ques­tions about tak­ing RMDs in 2009, con­tact your fi­nan­cial and tax ad­vi­sors.

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