Ken Himmler.com

This new law was just signed by President Bush on December 23, 2008 and it includes the suspension of Required Minimum Distributions (RMDs) for 2009. It states that individuals are are not required to take any distribution from their IRA or any other retirement plan for 2009.  This legislation contains numerous pension related provisions; however, a taxpayer who attained age 70 1/2 during 2008 has to receive their initial distribution by April 1, 2009 despite this law change, as that distribution is for 2008.  Taxpayers in this situation may have already received their initial distribution in 2008, and thus no further action is required.

The RMD is calculated based on life expectancy tables that are applied to the fair market value of the retirement account(s) as of the end of the prior calendar year.  Under the Internal Revenue Code, upon reaching the age of 70-1/2, individuals must begin receiving RMDs from their IRAs, 401(k) plans, and other retirement plans.  The initial RMD must be received no later than April 1 of the year following the year the age of 70-1/2.  Thereafter, annual distributions are required.

It should be noted that taxpayers who are required to get RMDs during 2008 have had to receive distributions based on the much higher fair market value of their retirement plan asset portfolios that existed on December 31, 2007, compared with the current values.  The 10% penalty for premature distributions taken from an IRA or other retirement plan prior to age 59-1/2 has not been changed for 2009.

Although this new law has been signed, many people will still choose to  take distributions from IRAs and other retirement plans during 2009 to cover living expenses and provide necessary cash flow in these difficult times .