Tag Archive for '401k'

Washington Changes Its Mind & You Have 8 Days Left (in 2008) To Comply

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  The penalty, which is 50% of the amount that was supposed to be withdrawn, is usually more than enough motivation for an IRA owner to fully comply.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.

McCain Calls for Suspension of Minimum Distribution Rules

I would have thought this was a bigger deal than McCain would lead us to believe having buried its announcement a third of the way through his stump speech, but I am kind of a geek:

[On October 10,] John McCain called for suspension of the requirement that retirees must begin liquidating their retirement accounts when they reach age 70 and a half, the latest economic policy rolled out by the Republican presidential candidate.

I’m a little dissapointed in the WSJ for stating the proposal that way because it is kind of misleading.  But, to be fair, their just echoing the misleading satements coming from the McCain campaign.  As Paul Caron (of the TaxProf Blog) points out here:

…there is nothing in the Internal Revenue Code or any regulation or ruling that says that retirement plan distributions must be made in cash. If the owner of IRA or 401(k) wants to keep the investments instead of selling them, the investments themselves can be distributed in what is known as an “in kind” distribution. So, contrary to what McCain claims, the present rules do not require retirees to “sell off their IRAs and 401ks”.

In-kind distributions are rare as they’re not suited for everyone but in a market that is as down as this one is, I would not be surpsised to see this option on the rise.

These decisions though should be part of a wholistic estate plan.  If you have questions you should call someone who knows what they’re doing and who does not have a stake in your ultimate decision.