April 12, 2010

2009 Required Minimum Distribution Waiver Guidance

By Diane Giordano, Tax Partner

2009 Required Minimum Distribution Waiver Guidance

The Internal Revenue Service has issued Notice 2009-82, which provides guidance and clarification affecting required minimum distributions (RMD) from certain retirement plans that were waived as a result of the Worker, Retiree, and Employer Recovery Act of 2008.

Generally, an RMD is the smallest annual amount that must be withdrawn from an IRA or other employer plan beginning with the year the owner of the account reaches age 70 1/2.

For 2009, the RMD rules are suspended for any qualified defined contribution plan (including 401(k)s), tax-sheltered annuity plans, and Individual Retirement Account (IRAs). As a result of the economic crisis in the later part of 2008, the Worker, Retiree, and Employer Act of 2008 provided some relief and will allow plan participants/beneficiaries a chance to recoup some of the devaluation of their assets without having to sell them at a significantly lower value.

This temporary suspension of the RMD rules does not mean that a participant/beneficiary cannot voluntarily take a distribution. Plan participants must also be aware that the 2009 RMD suspension only applies to distributions that are required from January 1, 2009 to December 31, 2009. If a participant/beneficiary elected to delay a 2008 distribution until April 1, 2009, the distribution will still be required.

However, participants should be aware that individuals who turned 70 1/2 during 2009, who would normally have to take their first distribution by April 1, 2010, are also exempt.

Some of the highlights and guidance contained within Notice 2009-82 include the following:

  • Transitional relief is provided through November 30, 2009 for plans which were unable to modify procedures relating to the new 2009 RMD rules.
  • Plan participants that may have already received distributions in 2009 are granted until November 30, 2009 to roll over such payments provided that certain requirements are met.
  • IRA owners that missed the 60-day rollover requirement on distributions are granted an extension until November 30, 2009 to make this rollover election. (It does not change the one-rollover-per-year rule, thus only one distribution from an IRA can be rolled-over.)
  • An extension of time is granted for anyone required to make the 5-year or life expectancy election in 2009.
  • Distributions that include 2009 RMD’s can be rolled over back into the same plan provided that the plan permits such rollovers.

Failure to make or take required distributions can result in substantial penalties. Please keep in mind that RMD rules are complex.