Recession Money: IRA/401k RMDs Suspended

If you’ve been looking at your retirement investment account, you are probably aware that things aren’t going so well. But eventually, your IRA or 401k will recover and you will be back in business. But things aren’t quite so positive for those who have reached the point where they are required to withdraw money. These are known as required minimum distributions (RMDs), and if you are at least 70 1/2, you have to take a minimum amount out of your retirement plan each year.

However, 2009 is an exception, thanks to the recession. The IRS has ruled that a suspension is in order; you do not have to take your RMDs this year.

Taking RMDs

If you do not take the minimum amount of money out each year after you turn 70 1/2,  the IRS can penalize you 50% of the amount you should have taken out. For most people, in times where recessions and stock market crashes aren’t depleting earnings, taking RMDs is no big deal. But right now it’s difficult. With retirement investment accounts losing value, it can be devastating to take that money out of the account — thereby solidifying losses. That’s why it is a blessing to many to have the rule about minimum distributions suspended for 2009. The idea is to give retirees a chance to let their retirement accounts recover. (Of course, some retirees may have no choice but to take distributions anyway, since they might need the money.)

Jeff Rose, at Good Financial Cents, points out that if you have already taken your distribution, it is possible to roll it back into your retirement plan or IRA. He suggests that you contact your plan administrator to find out your eligibility for RMD suspension and rollover if you have taken your distribution.

image source: Darren Hester via Flickr