Retirement is probably the number one thing most older Americans worry about. The posts in this category are about retirement and qualified planning. Retirement accounts are often referred to as qualified because that is how they are usually classified by the IRS.
I briefly mentioned in my Article about Missing RMDs (Required Minimum Distributions) that RMDs were actually suspended for tax year 2009 (but remember not 2008!). Well, today I found a great Q&A/Follow up on the Wall Street Journal Personal Finance Section website. It is appropriately titled “Details on the New IRA Rule” and was written by Anne Tergesen.
Ms. Tergesen does a great job asking Ed Slott some simple Q&As. Mr. Slott, whose website I use almost daily is an IRA expert and is often quoted in the Wall Street Journal as such. Additionally, I think Mr. Slott has a PBS program/infomercial but to be honest I haven’t seen it. Most importantly, Mr. Slott produces an AMAZING monthly newsletter. Now that I am done kissing up to Mr. Slott (lol!)
If I need to take a withdrawal from my account in 2009, can I still do so?
Yes. While the requirement to take a distribution is suspended in 2009, you can always tap your account.
Does the suspension apply to both traditional 401(k)s and Roth 401(k)s?
When I resume taking withdrawals in 2010, how should I calculate the minimum amount to take out?
In any year, the formula calls for taking your account’s balance as of the previous Dec. 31 — and then dividing by your remaining life expectancy. Using this method, your first step in 2010 will be to look up your account balance as of Dec. 31, 2009. To ascertain your remaining life expectancy, use the figure that corresponds to the age you’ll turn in 2010, which can be found in IRS Publication 590.
Does the law apply to an IRA I have inherited, even if I am not yet 70½?
Yes. If you have inherited an IRA, you can skip your required distribution in 2009.
I am taking regular distributions from my retirement account under section 72(t) of the tax code. Am I allowed to skip my withdrawal in 2009?
No. Section 72(t) deals with people younger than 59½, while the law suspending distributions applies to those over 70½ and to IRA and plan beneficiaries. As a result, you will still have to take your required withdrawal.
Does the suspension apply to tax-deferred annuities or defined-benefit pension plans?
No, it applies only to IRAs, 401(k)s, and similar defined-contribution retirement plans.
If I decide to skip my IRA distribution this year, do I have to notify my financial-services company?
No. The financial-services company should know that distributions have been suspended for the year. Still, in January financial-services companies generally send out notices reminding customers to take their mandatory withdrawals.
If you receive such a letter, it wouldn’t hurt to instruct your broker or banker to put your withdrawal on hold this year. If you are mistakenly issued a check, you can roll the money back into your IRA with no tax consequences. But don’t delay: You have only 60 days after receiving the money to do this.
If I choose to withdraw money from my traditional IRA this year — either to spend it or to fund a Roth IRA — will this create taxable income?
Yes. Any money withdrawn from a traditional IRA is subject to income tax. But in 2009, with required distributions suspended, any money you withdraw from a traditional IRA can be used to fund a Roth. Normally, those taking mandatory distributions from a traditional IRA aren’t allowed to turn around and convert that money into a Roth IRA.
I think the most important Q&A, for my readers, is the fact that you don’t have to take an RMD for an inherited IRA. I only say this cause I have no indication that many readers are 70.5+ years of age, and while I have a few professionals that check my site out, I think its mostly everyday peeps!
Do you have any other questions that I can try to find the answer to?