RMD Relief Granted — for 2009
No relief for 2008
By Kaye A. Thomas
Posted December 13, 2008
Updated January 2, 2009
Relief for 2009 will even things up.
As we reported earlier, a lobbying effort has been under way to provide relief from rules for required minimum distributions to people over 70½ holding retirement accounts other than Roth IRAs. The idea was to help people preserve their retirement savings in these tough economic times. Proponents of the relief noted that the rules have an unfair impact in a year when investment values decline sharply, because the amount of the required distribution is determined based on account values as of the beginning of the year. Someone who's required to take 12% of the account value as of the beginning of 2008 may be forced to withdraw 18% or more of the actual balance that remains after these severe market losses.
Some people were pushing for relief from these rules in the current year, but I was skeptical that this would be possible. Administrators of retirement plans and trustees of IRAs need more than a few weeks to change their procedures. It appears that this was the view of lawmakers as well. Congress has passed a law providing a one-year waiver of the minimum required distribution from retirement plans and IRAs, but for 2009, not 2008. At one point the Treasury said it was considering whether it could provide relief for 2008 without the benefit of authorizing legislation, but it decided against this action.
For the vast majority of retirees, the opportunity to skip a year of required distributions in 2009 will more than make up for the unfairness of having to take a 2008 withdrawal based on values that existed before the stock market collapsed. This may not be precisely the relief many would have desired, but most will end up preserving more of their retirement accounts than they would under a more targeted rule that permitted a 2008 distribution based on reduced values.
There is still the possibility of further relief from the new Congress that begins work in January. Senator Olympia Snowe (R-Maine), a strong proponent of this relief, has proposed legislation that would extend the period in which withdrawals are not required through 2010, and also allow individuals to restore to their accounts the amounts they were required to withdraw in 2008. Passage of this legislation cannot be assured, however. Meanwhile, we suspect there may be some people who failed to take RMDs in 2008 based on confusion surrounding the effort to waive the requirement, and it will be interesting to see whether those people receive any form of relief from the stiff penalty that applies in this situation.
This article has been updated to add information concerning Senator Snowe's proposal for additional relief. A subsequent update reflected Treasury's decision not to provide relief for 2008.
Related
- Minimum Distribution Relief? (previous feature)
- Go Roth! (book on Roth IRAs and Roth accounts in 401k and 403b plans)
- Guide to Roth Accounts (free online guide)
- Fairmark Forum (post questions and comments)
