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Reminder about Required Minimum Distributions

Print Posted by Cheryl Costa December 3, 2009 10:54 AM

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If you have been taking Required Minimum Distributions (RMDs) from your 401(k) or Individual Retirement Accounts (IRAs) in years past, remember that you do not need to take these RMDS in 2009 thanks to the Worker Retiree and Employer Recovery Act which was signed in late 2008. If you want to or need to take the distributions, you certainly can, but you are not REQUIRED to take them this year. Also, there is no requirement to "make up" this year's payment next year. Basically, you are able to take a one year "pass".

It is important to note that the RMD suspension for 2009 also applies to inherited IRAs. In a nutshell, the waiver applies to any retirement plan that holds a participant's benefit in an individual account. This includes 401(k)s, 403(b)s and some 457 plans. Distributions from defined benefit plans, though, are still required. If you are unsure about what type of plan you have, ask your employer or plan administrator.

The new act also helps those in the middle of taking distributions over a five year payment arrangement. With the new waiver, you can simply skip the distribution this year and extend the payment period by one year -- in effect extending the five year window to six years.

The one point to be careful with is this -- if you turned 70 1/2 in 2008 but were delaying taking your first distribution until April 1, 2009, you must still take that distribution. Failure to do so will result in a very big fine.

Finally, if you took a distribution this year before you knew that you didn't have to, IRS Ruling 2009-82 gave you until November 30th to return the unwanted distribution.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

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About the contributors

Andrew Chan is the founder of Integrative Financial Advisors in Framingham. He provides comprehensive financial planning advice and investment management services. He has been an adviser for over 12 years and works with clients to integrate all aspects of their finances including investments, retirement, education funding, and tax planning.

Cheryl Costa is a managing director at AFW Wealth Advisors, which has offices in Natick and Purchase, N.Y. She advises clients on investing, education funding, and estate planning. She holds a master’s in business administration from Boston University.

Jamie Downey has been an accountant for more than 14 years. He's a partner at Downey & Co. in Braintree. Prior to joining the firm, he served as a manager in the audit department of accounting firm KPMG.