If you're one of nearly 20 percent of the American population aged 65 or older, or one of 44 million caregivers for those in the older age bracket, or someone receiving IRA payments as a beneficiary this could be good or bad news. You decide....
As part of the "Worker, Retiree, and Employer Recovery Act of 2008" (H.R. 7327), the usual IRA distribution schedule has been waived. Owners of traditional IRAs, who usually must start taking IRA distributions by April 1 of the year after they turn age 70½, don't have to take that withdrawal in 2009. This waiver applies to IRA participants as well as to beneficiaries. Why good or bad news?
First, we know that a growing number of Americans are spending thousands each year to help care for their aging parents ("Boomers Shell Out to Help Parents"). We also know that the economy has taken a toll on caregivers ("Economy Takes Toll on Caregiving"). There is some relief with federal programs helping caregivers navigate Medicare for those over age 70 1/2 (Caregivers Get Help on Medicare), but -- as we all know -- medical expenses make up only a part of the costs of sustaining life in retirement.
So while this is good news for those whose IRA values were hit by the falling markets, who now ideally can take the year to regain some of those losses before being required to sell or transfer out those assets, it's the opposite side of the coin for those who actually need their IRA distributions to live on. They'll have to cut their losses in yet another case of the rich getting richer and the poor staying there.
Meanwhile, the Act doesn't help those who had to take a required minimum distribution in 2008, when stock values had plummeted to about their lowest points. Factor in the fact that the distribution amount is figured on the likely much higher value of the retirement account at the end of 2007, and those retirees are already in a world of hurt. As one blogger put it: "Consequently, the primary beneficiaries of the RMD relief rules of the WRER Act are individuals who have sufficient other income or assets that they do not need to take any withdrawals from their retirement accounts in the first place."
Back to the good news? At least this law will provide retirement account holders with the option to choose: take the retirement account distribution as planner, or save it for next year. After all, in times like this, at least the option is out there.
NOTE: Detailed guidelines can be found in IRS Publication 590 under the "Temporary waiver of required minimum distribution rules for 2009" section. Meanwhile, if you received a distribution in 2009 that would otherwise be a required minimum distribution, you can roll over that amount into another IRA or eligible retirement plan within 60 days of the distribution. The distribution then will not be subject to the 20 percent income tax withholding requirement.
P.S. This "Worker, Retiree, and Employer Recovery Act of 2008" was signed into law by President Bush on Dec. 23, 2008.
How about you? Good news, bad news or indifferent?
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Comments: 23
thanks for sharing
I do not have parents and i do not have an IRA.
I myself will work until I drop. They will have to pry the boots off me. Pry me from the keyboard, where I hope to be a successful novelist....
RE: where I hope to be a successful novelist....
Hope to be? Seems like you're already there.... ; )
I will never be able to live off social security at all, nor do I care.
What about an IRA or 401(k)? Do you or your willed-to-you relatives have anything tucked away there? If so, this waiver applies. If not, then thank you so much for all of the comments. Fun insight.
I looked at my stock report over the weekend. I haven't been able to get up the courage to review for a year. Things are actually starting to look better. *whew*
Excellent news De. I'd say that now is the time to check in with your broker as well, just to see if any stock moves -- for those that have fallen and can't get up -- are in order.
Excellent info Ms M I will pass this on to Hubby, he is the financial whiz kid here
Sounds good. Thank you Debra. Feel free to share his feedback here.
I don't have a IRA
Thanks for the comment nonetheless donna h.
I heard something about this but didn't have details. Will pass it on to my parents to see if it applies to them.
Good. I hope this information helps. They can check the link online to see the rules in full.
I thought you had to start withdrawing from your IRA at age 59 1/2. If it's 70 1/2, I'll never see it. LOL!!
Good point of clarification J F. (And, btw, 70 1/2 is the new 50....) You indeed can start taking direct distributions from your IRA at age 59 1/2. However, you're not REQUIRED to do so until age 70 1/2. The annual distribution amount is set as a percentage of the value of the account at the end of the previous tax year.
I'd be more specific, but the Publication 590 tax rules on IRAs refer me to Table I and Table II in Appendix C for figuring the required distribution amount. However, I'm unable to find this on the IRS.gov site itself.
Keep on keeping on J F.!
We can't ever say we can't or wont' we never know when it will happen.
Yep, at least a waiver like this gives you the option if needed....
Let me point out a way to withdraw a certain amount from your IRA without having to pay income tax if you're in a certain tax bracket and meet certain requirements:
1). both spouces are 59 1/2 years or older in 2009
2). you have no other income other than Social Security
3). combined Social Security distribution is less than $1,850/month
You can withdraw up to $18,700 ($20,900 if 65 or older) from your IRA each year without incurring ANY income tax. The trick is to have your IRA distribution combined with 1/2 of Social Security distribution not exceed $32,000 for a married couple. Singles have a smaller set of numbers (max of $25,000 overall)
I was hoping you would be describing this option further Jeff. Thank you!
This is a standard fare for federal income tax filings for older folks (between 59.5 and 65). I'll break it down into components:
$18,700 .... IRA distribution in one year
$(7,300) … Personal Exemption
$(11,400) .. Standard deduction
…..$0.00 …. Gross income
Therefore the tax is zero.
Now if you receive $22,200 in SS distribution, take half ($1,850/months x 12 months SS distribution), and add to IRA distribution, or $18,700 + $11,100 = $29,800. If this amount is less than $32,000, then SS benefit does not incur any tax.
For 65 or older
$20,900 .... IRA distribution in one year
$(9,500) … Personal Exemption (for 65 or older)
$(11,400) .. Standard deduction
…..$0.00 …. Gross income
Therefore the tax is zero Now if you receive $22,200 in SS distribution, take half ($1,850/months x 12 months SS distribution), and add to IRA distribution, or $20,900 + $11,100 = $32,000. Since this amount is equal to $32,000, then SS benefit does not incur any tax. But be careful, if you exceed $32,000, your SS benefit above the $32,000 will be taxed at 10% tax rate.
This option does not have anything to do with RMD
I should have said: .....$0.00 .... TAXABLE income. Personal exemption and standard deduction amounts are for 2009, and is indexed to inflation rate, but $32,000 is not, so your IRA distribution may have to be decreased next year (I do not know what 2010 tax table looks like).
Most people should be able to subsist on $40,900 without earning additional income in a year if they have paid off their mortgage and have no other debts.
One more comment about higher incomes. Using above examples, but the sum of IRA distribution and 1/2 of SS benefits in one year are between $32,000 and $44,000 for a married couple (between $25,000 and $34,000 for a single), then 1/2 of your SS benefit will be taxed at 10% rate. Above $44K ($34K for single), 85 percent of SS benefit will be taxed at your current tax rate. You must do your homework to minimize your income tax - and I love paying as little tax to Uncle Sam as possible. Taxing thought, isn't it?