Retirees Can Benefit From Suspension of Required Minimum Distribution (RMD)

3/23/2009

posted by N. Sioris

Stumble It!

With the obliteration of Trillions of dollars of investment wealth as a result of the stock market meltdown, retirees can take a small amount of solace from the one-year suspension of the required minimum distribution (RMD) rule.

The RMD rule normally requires folks that are age 70 1/2 or older to take a specified amount of money out of their IRA, 401(k) or similar retirement accounts on an annual basis. The amount you must take out is based on age and account value at the end of the previous year. However, late last year Congress passed temporary legislation waiving the penalty if you do not take out the required amount. Under normal circumstances the penalty is an onerous 50 percent of the amount that you should have taken out of your account(s).

The temporary tax-law change allows seniors some flexibility about how much to withdraw from retirement accounts. Some may choose not to withdraw anything in order to give their balances time to recover from the decline. Others may wish to take only what they absolutely need in order to get by.

Financial and tax experts suggest that for anyone that has the ability to use income from other sources, they should keep withdrawals to a minimum in order to avoid locking in stock market losses. The experts also point out that not drawing down on these accounts now will help them last longer into the future.


A Word of Caution:

Tax law is complicated and everyone's situation is unique. This post is not to be construed as tax advice. Please check with your personal tax adviser regarding the strategy that will be best suited for you.