According to these various & sundry stories, it looked like Washington was going to act to suspend the minimum distribution requirements for 401ks for 2008 and 2009. No idea what I’m talking about? Michael Keenan can help:
RMD’s are a specific amount of money, based on your life expectancy and the balance in the account, that must be taken as taxable income each year starting at the age of 70 1/2. Technically, the deadline for your first RMD is April 1st of the year following the year in which you turn 70 1/2.
Anyway, the tax code wields a pretty big stick for those who decide to ignore this requirement. The penalty, which is 50% of the amount that was supposed to be withdrawn, is usually more than enough motivation for an IRA owner to fully comply.
But in light of the decimation of everyone’s IRA’s the thought was that it seemed cruel to accelerate the decimation by continuing the obligation to take RMD’s. In fact, Congress apparently reached a bipartisan proposal for suspending RMD’s for 2008 & 2009, and many retirement owners have been delaying the withdrawal of their ’08 RMD in light of the plans.
However, according to a December 17 letter from a senior Treasury official to Congress obtained by CCH. “Individuals who are subject to RMDs for 2008 should take their distribution under existing rules[.]”
What does that mean for you, the taxpayer? It means hurry up and take those distributions or you could see your friendly neighborhood tax guy come along and take their 50% penalty… And after the year most of us have had, another 50% really stings.
Thank you Mr. Keenan for your great post.