by Richard Schneider
Emeritus Professor of Accounting
Winona State University
In 2008 President Bush signed the ‘Worker, Retiree, and Employee Recovery Act of 2008’. The act provides temporary relief from minimum required distributions (RMDs) from retirement accounts for taxpayers 70 ˝ or older. As we know the stock market really took a dive in 2008 causing stock related investments in retirement accounts to decrease by 30% or more. Requiring retirees to draw out some of these investments would lock in the losses, so this bill passed in 2008 allows the retirees to skip the RMDs for 2009 only.
The relief is for 2009 only, in 2010 persons over 70 ˝ must continue taking the RMD from their retirement accounts. The types of accounts involved are normally IRA’s, 401K’s, and/or 403B’s. The relief provision does not prohibit nor punish retirees for taking a distribution in 2009; in fact many retirees will need to draw some money just to meet normal expenses.
The relief provision also applies to individuals under age 70 ˝ who inherited a retirement account, such as a IRA, and have elected to receive the IRA over their expected life. Their required distribution for 2009 is also waived.
I find myself asking why did the federal government pass a law requiring minimum distributions in the first place. The only reason that makes sense is accelerating the collection of income tax on these tax deferred accounts. If the retiree did not need the funds, and did not pull any out of the IRA, or 401K accounts, the funds would grow tax deferred, and only be taxed upon the death of the taxpayer, when the heir takes the distribution from the retirement account.