Required retirement withdrawals waived … in 2009

Remember in yesterday's post on year-end retirement moves, I mentioned (look for the "breaking news" icon) that Congress was looking to provide some relief with regard to required minimum distributions?

They did. Now the measure is awaiting Dubya's signature.

Here's the deal.

If you have a traditional IRA or 401(k), when you turn 70½ you usually have to start taking out some of that money. It's been growing tax-deferred for long enough, or so says the tax code, so you have to pull out some money and pay taxes, at regular rates, on the withdrawals.

These are known as required minimum distributions, or RMDs. Forget or ignore your RMD (the IRS has tables that help you figure out the precise amount), and you'll face a stiff penalty.

But with the stock market in chaos and retirement (and other) funds losing so much value, lawmakers thought that making people pull out RMDs wasn't quite fair. What they want to do is keep retirees from having to sell some investments at a loss just to meet the tax rules.

So as part of the Worker, Retiree, and Employer Recovery Act of 2008 (H.R. 7327), RMDs for 2009 are waived.

What about 2008? The temporary suspension of RMDs is great news for older account holders who would be facing this task in 2009. But the new soon-to-be law doesn't do a thing for folks who have a Dec. 31, 2008, RMD deadline to meet and are confronting the same lost value concerns.

There's still hope that Treasury will issue a ruling to help out those folks via a regulatory pronouncement. Several members of Congress have been urging Secretary Henry Paulson and crew to do just that.

I add my voice to that clamor. If federal officials can change the rules for banks, then they can do a little something for older taxpayers.

Clint Stretch, managing principal of tax policy for Deloitte Tax, told USA Today that one possibility is that the Treasury could allow retirees facing an RMD in a couple of weeks to calculate their withdrawals based on the value of their IRAs at the end of 2008, instead of the end of 2007. For most seniors, that would result in smaller withdrawals.

Treasury spokesman Andrew DeSouza said in an e-mail to the newspaper that the department is "studying its regulatory options."

Additional reading: You can read more about the RMD change and other parts of the new pension law by reading the bill's actual text, as well as the Joint Committee on Taxation's explanation and, for all you numbers geeks, the Committee's revenue analysis.

More readable news stories can be found at the aforementioned USA Today, as well as from the Associated Press, Bloomberg, the New York Times, Reuters, MarketWatch, the Wall Street Journal and the Washington Post.