Laws amended for tax year 2009

On December 23, 2008, President Bush signed into law H.R. 7327, The Worker, Retiree and Employer Recovery Act (the Pension Act PL. 110-458) that allows individuals who are subject to required minimum distribution rules to suspend required minimum distributions from their retirement plan or individual retirement accounts in 2009 without penalty. The law is intended to provide relief to people concerned about the potential impact of ongoing financial market problems regarding their retirement accounts.

New Legislation
Account owners, or their beneficiaries, who are required to receive a required minimum distribution payment in 2009, may voluntarily request that the payments be suspended. Individuals may return minimum distributions received in 2009 provided that they do so within sixty (60) days of the minimum distribution payment. In short, the new law gives individuals a sixty (60) day window from the date of receiving a minimum distribution payment in 2009 to re-contribute the payment or roll it over to a qualified retirement account without penalty. This deferral is only for the tax year 2009 and does not have any impact on required minimum withdrawals of retirement accounts and IRAs for 2008.

Old Laws vs. the New
Normally an owner or beneficiary of a retirement plan must take the required minimum distribution by April 1 of the calendar year following the later of (1) the year in which the participant reaches age 70 ½ or (2) the calendar year in which the participant retired from employment with the employer who maintained the plan. For IRAs, the required minimum distribution must be by April 1 of the year following the year in which the participant reaches age 70 ½.

If an owner or beneficiary of a retirement plan or IRA does not take the required minimum annual distribution, a fifty (50%) percent excise tax is imposed on the amount that they should have withdrawn.

Taxpayers Who Turn 70 ½ in 2009
If a Taxpayer turns 70 ½ in 2009, the new law suspends the distribution requirement for such individuals. Thus, first timers who turn 70 ½ in 2009 will not be required to take a 2009 withdrawal, which normally could take place up until April 1, 2010. However, such a Taxpayer will need to make the 2010 withdrawal and the government will consider this as a second distribution even though, in reality, it is the Taxpayer’s first withdrawal. Therefore, an individual will have until December 31, 2010 to take the minimum required distribution and not be able to wait until April 1, 2011 to take his first withdrawal.

Inherited IRA/Retirement Plans
Additionally, if an individual inherited an IRA or retirement account and is required to take out the money under the five-year deadline requirement, he can skip the withdrawal for 2009, which will stretch the five-year deadline out for another year.

Charitable Donations from an IRA Account
The Bail Out Package (H.R 1424) enacted by Congress in October 2008, and signed into law by President Bush on October 3, 2008, is called the “Emergency Economic Stabilization Act of 2008.” It has extended the tax break available to individuals who make donations from their IRAs to charities in 2008 and 2009. Under this law, individuals aged 70 ½ or older can donate as much as $100,000 from an IRA to a public charity. No taxes are due on the withdrawal and the donation counts towards a person's required annual withdrawal.

If you have any questions regarding this new legislation and its implications to your IRA or Retirement Plan distributions and taxes, MacElree Harvey’s tax attorneys will be happy to create a tax planning strategy for you.

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