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Required Minimum Distributions (RMDs) Waived for 2009
In the current economic environment, many
contract values have been severely impacted by the deep
declines in the stock market. Retired clients with
investments that do not offer a guaranteed rate of return or
downside market protection have a relatively large exposure
to sequence-of-return risk. For these clients, taking a
distribution following a bear market can have a devastating
impact on the success of the retiree’s financial plan. The
more extensive the bear market, the higher the probability
that the retirement financial plan will not be successful.
On December 23, 2008, President Bush signed
into law the “Worker, Retiree, and Employer Recovery Act of
2008” (the “Act”) into law. Among other things, the new
legislation contains a provision that provides a temporary
waiver of 2009 RMDs for IRA owners, plan participants, and
their beneficiaries. It is important to note that this
waiver does not apply to beneficiaries of nonqualified
annuity contracts. By suspending 2009 RMDs, the intent is to
lessen the impact of sequence-of-return risk and to help
taxpayers preserve retirement accounts.
|
What’s changed? |
|
Before the Act |
As a Result of the Act |
|
RMDs for 2009
are
required. |
RMDs for
2009
are not
required. |
|
RMDs
are not
eligible:
|
Amounts that would otherwise
be RMDs are
eligible:
|
|
Qualified plan distributions
eligible for rollover treatment
are
subject to mandatory 20%
federal tax withholding. |
Qualified plan distributions
that otherwise would have been 2009 RMDs
are not
subject to mandatory 20%
federal tax withholding. |
|
Beneficiaries taking
distributions using the five-year rule must deplete
the account no later than December 31 of the fifth
year following the year of death. |
Beneficiaries taking
distributions using the five-year rule now get an
extra year to deplete the account.
The year 2009 is excluded
and the account must be depleted no
later than December 31 of the sixth year following
the year of death. |
|
What has not changed? |
|
RMDs for 2008 and 2010 are required.
are not
waived.
RMDs for 2009, even
if they can be postponed until April 1, 2010,
are
waived.
|
|
There is no change to
the method of calculation of the RMD amount. |
|
The waiver does not apply to distributions
from defined benefit plans. |
|
The 50% penalty on RMDs not taken is not
waived. However, because the RMD for 2009 is zero, there is
no penalty if no distribution is taken. |
|
There is no change to the definition of
required beginning date (RBD). |
|
There is no effect on charitable IRA
rollover tax treatment. |
Next Steps
Consider taking advantage of this
opportunity to help reduce your client’s exposure to sequence-of-return risk. Incorporate the
temporary waiver into your client’s retirement financial plan by taking these action steps:
-
Review your client’s RMD plans.
-
Confirm that the 2008 RMD requirements
have or will be met.
-
Determine if your client would prefer to
waive 2009 RMDs.
-
Contact the applicable financial
institution and provide instructions to accomplish the client’s 2009 objectives.
-
Implement a plan to be sure 2010 RMDs will
be distributed.
If you have any questions regarding the new
legislation or any RMD issue, contact the Advanced
Marketing team at:
(800) 722-2333, ext. 3939
In New York: (800) 748-6907, ext. 3939
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