| May 25, 2009 Humberto Cruz, South Florida Sun-Sentinel.com Even if the law says you don’t have to do something, it may be a good idea to do it. But make sure you know the rules so you don’t run into trouble with the Internal Revenue Service. I’m talking about what my reader mail shows is a widely misunderstood waiver by Congress of minimum mandatory withdrawals from individual retirement accounts, 401(k)s and other qualified retirement plans for 2009. These so-called required minimum distributions, known as RMDs, are amounts people must take out of these accounts each year after they turn 70 1/2 . If they don’t, the IRS slaps a 50 percent tax penalty on the amount that should have been withdrawn. The rationale for RMDs is that at some point the government wants people to start withdrawing — and paying taxes on — the money they’ve sheltered in these accounts. The rationale for suspending RMDs for 2009 was that the one-year reprieve would help build up account balances ravaged by the bear market. But “tax law changes are never simple and straightforward,” said Robert Carlson, a financial adviser in Virginia and editor of the newsletter Retirement Watch. One big detail is that the RMD waiver is for 2009, not necessarily in 2009. By law, the first RMD can be taken by Dec. 31 of the year the account holder turns 70 1/2 , or by April 1 of the following year. In either case, the distribution is considered to be for the year the person turns 70 1/2 . Future distributions must be taken by Dec. 31 each year. Therefore, anybody who turned 70 1/2 in 2008 and did not take the 2008 distribution by Dec. 31 needed to have done so by April 1, 2009. The new law did not waive that distribution because it was for 2008. What if you were confused and failed to take your 2008 RMD by April 1? “Take immediate correction action, take it now,” said Ed Slott, a certified public accountant in Rockville Centre, N.Y., and editor of an IRA newsletter for financial professionals. The IRS is more likely to be forgiving if you are the one who discovers an error and corrects it, he said. The waiver of RMDs for 2009 does not mean you cannot withdraw money from retirement plans this year, as some of you in tight budgets feared. It only means you don’t have to. Even if you don’t need the money to live on, many retirees should consider what Carlson called an “unprecedented opportunity” to convert some of the money in traditional IRAs to Roth IRAs in 2009. Required minimum distributions cannot be converted to Roth IRAs. But without RMDs for 2009, you could take what the distribution would have been — or any amount appropriate to your tax bracket and situation — and convert it in 2009. If you later change your mind about a 2009 conversion, you have until Oct. 15, 2010, to undo it and put the money back in the traditional IRA. |
26 May
Posted by how to make money online writing on January 2, 2010 at 2:11 am
Been reading your blog through 2009 and will continue in 2010
Happy new year
Posted by Investor Relations Services on February 10, 2010 at 12:07 am
Great site been reading and will add your site to mine.
Posted by Berenice Gornie on February 19, 2010 at 5:59 pm
I guess there is always an easier way …