RMD Holiday in 2009

Late last year, as part of the bailout packages that were spinning through Congress, a provision was added to the tax law that allows for a “holiday” on Required Minimum Distributions for the year 2009.

What this means is that if you are over age 70½ and thus subject to Required Minimum Distributions (RMDs) from your IRA or other retirement plan, you are not required to take the distribution for tax year 2009.  Just to briefly run through the requirements – when you have an IRA or other retirement plan (but not a Roth IRA), once you reach age 70½ you are generally required to begin taking RMDs from your account each year.  The minimum amount required to be distributed is based upon your attained age as of January 1 of that year, as well as the balance of your account(s) as of December 31 of the prior year.  For the purposes of determining the amount, all IRA accounts are treated as one large IRA, while any other retirement accounts (401(k), 403(b), 457, etc.) are treated separately.

So – what does this mean to the person who reaches age 70½ during 2009?  Excellent question… and for the unitiated, the critical factor is that, always in your first year (the year you reach age 70½), you get an extra 3 months to take the distribution.  That is, when you reach age 70½, you have until April 1 of the following year to take the RMD for that particular year.  However, if you delay until after the end of the year in which you reach age 70½, you will effectively have to take two minimum distributions in the same tax year, as all subsequent RMDs (after your first year) must be received by December 31 of that year.

But for 2009, if you reach age 70½ during that year, you are not required to take the first RMD.  And then in 2010, unless something changes in the tax law, you will be required to take a minimum distribution before December 31, 2010, since that will effectively be your second payment (but the first one you didn’t have to take, in 2009).

And what if I turned age 70½ in 2008 and had not taken my RMD by December 31?  Unfortunately, you are still required to take your RMD by April 1, 2009 – the tax provision only allowed for changes or skipping of the RMD for tax year 2009.

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 Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 25 years of experience in the industry. Read more from this author