Required Minimum Distributions Postponed This YearSubmitted by Grunden Financial Advisory, Inc on November 17th, 2009
Many seniors are discovering that a new law titled The Worker, Retiree, and Employer Recovery Act of 2008 waives the Required Minimum Distributions (RMD) for 2009. Investors who are aged 70 ½ or older are not required to withdraw money from their IRAs or other defined-contribution plans for the current tax year. This applies to both owners and beneficiaries of IRAs for the 2009 tax year only.
The rationale behind this law is to allow funds to remain invested in hopes of growing to offset losses from last year. It doesn’t forbid you to take a distribution from a qualified account like an IRA if you need those funds to support your lifestyle.
Most investors benefit from keeping the funds in their IRAs and allowing them to grow on a tax deferred basis. Some, however, may find it in their best interest to withdraw a portion of the RMD during 2009 as a tax strategy. Each investor’s situation is different and consulting with a CPA and financial advisor is important before deciding if this strategy is right for you. If an investor is in a situation where an RMD distribution typically pushes them into a higher tax bracket, they may consider taking out just enough in 2009 to remain in the lower tax bracket and investing that amount in a taxable account. The result:
- Moving money out of an account at a lower tax rate today (as opposed to a higher tax rate tomorrow) and investing in an account where long-term capital gains rates apply (typically lower than ordinary income rates).
- By withdrawing the funds, it reduces your IRA balance and thus reduces future RMDs.
Everyone’s situation is different and this idea may not be appropriate for you so please consult your CPA or your financial advisor to determine if this strategy is suitability for you.