Retirees Can Skip Their RMD in 2009

Don't Take Your RMD from Your 401k or IRA for a Nice Return

Mar 4, 2009

In December 2008, Congress enacted a new law that allows retirees to skip their required minimum distributions from their 401(k)s and IRAs for 2009.

We are in the middle of an epic bear market. The 401(k) and IRA retirement accounts of retirees are suffering as never before. Many have lost between 30% - 40% of their retirement savings. In December 2008, Congress gave you a small gift in the middle of the chaos. They passed a law allowing you to not take your required minimum distribution from your 401(k) or IRA for tax year 2009. There is no change in the law, however, for 2008.

Usual Timetable for Required Minimum Distributions

Usually, the owner of a 401(k) or IRA has to start taking a required minimum distribution from their plan in the later of the following two time periods:

More information can be gathered about the required distribution date from Internal Revenue Service (IRS) Publication 575. Required minimum distribution rules do not apply to Roth IRA owners while the owner is alive. If a RMD is not taken, then the amount not withdrawn is taxed at 50%.

Usual Amount of Required Minimum Distribution

The RMD is usually calculated by dividing the December 31 balance of the retirement account by life expectancy factors that the IRS publishes every year. Even though a CPA or financial planner may help you calculate your RMD, you are ultimately responsible for the accuracy of the amount.

The 2009 Law Waiving the Required Minimum Distribution

Because of the economic downturn and the unprecedented drop in the stock market, the requirement for retirees to take their 2009 RMD has been waived. If you turn 70 1/2 in 2009, you will not have to take your first RMD until 2010. If you have been taking a RMD for awhile since you are retired, you can skip taking your RMD in 2009, if you can afford it.

This means that the money you would normally take as your 2009 RMD will not have to be taken out of the market at a loss. It also means that, whenever the market begins to recover, that money will be there to start to grow again. This could be a very good thing for your retirement portfolio.

If you would typically withdraw $40,000 from your retirement nest egg in 2009, but you leave it in the stock market, that money will be there to grow. If the market starts to grow at a 5% rate in 2010, that $40,000 will grow into a nice sum even at the end of five years and even adjusting for inflation.

If you can afford it, consider not taking your required minimum distribution from your retirement portfolio in 2009. You may be glad you did.

The copyright of the article Retirees Can Skip Their RMD in 2009 in Retirement Savings is owned by Rosemary Peavler. Permission to republish Retirees Can Skip Their RMD in 2009 in print or online must be granted by the author in writing.