Coytee Posted January 14, 2009 Share Posted January 14, 2009 I doubt that anyone here might really need to worry or care about the above however, you might think about your parents and perhaps share this with them in case they might be able to take advantage of it. Bottom line, because the stock market has imploded, our government has thought it to be gracious to not force people to take a RMD (required minimum distribution) for calander year 2009. Upshot of how this typically works (for those who might not be clear) Once you reach the age of 70 1/2, you are required to take distributions out of your traditional IRA. The calculation of the required amount is basically done by taking the value of ALL of your retirement accounts on the PRECEEDING December 31, dividing it by your life expectancy (tables provided in various places). The amount done by this calculation is the MINIMUM you MUST take out of your retirement account. Here's the problem...and I'll use 12 months ago to try to better illustrate it If someone age 75 had a $500,000 IRA value last December 31, 2007 and the market might have been at maybe... say... 14,000 If they waited until this past November (2008) to take the money out, the calculation is $500,000 divided by their "divisor" or 22.90 (as obtained from the life tables) So we have 500,000/22.90=$21,834 as the minimum this person must take out of their IRA. If they FAIL to do so, then the IRS penalty for failure to take proper amount out, is 50% of the amount not taken out. If the distribution was skipped alltogether, then 50%x21,834 would give an IRS penalty of $10,917. You really don't want to screw this up!! By the way, this amount would equal to 4.37% of the $500,000 Now... here's where it gets interesting. If the person took the distribution out on January 1, then presumably, they had an account value of $500,000 +/- some pocket change. What however, if they waited until November when the market might have been at 8,500 and their account worth $300,000? They're screwed. The RMD is based on PRIOR December 31 value and the fact that the person waits and the market tanked on them doesn't matter to the IRS. So, they'd still have to take out $21,834 on an account worth $300,000 or 7.28% of the current account value. This is one area where people can really get whammied. Seems our government has decided it would be good politics to allow an exemption for this calander year and not require people to take out their RMD's. Some people can afford to not take it out and this might be a good thing for them. Other people can't afford to not have their money and though this might be a nice gesture, it is an empty lifeboat for these people. I've attached a pdf that I found doing a simple google, I've got no association with the people that created it, I just wanted to share something that went into more detail. So, if you have parents, friends who might have some means and not HAVE to take money out of their IRA's this year, then make sure they find out that they might not have to. This concludes today's public service announcement... [] 2008 Worker Retiree Employee Recovery.pdf Quote Link to comment Share on other sites More sharing options...
Guest " " Posted January 14, 2009 Share Posted January 14, 2009 interesting...thanks for posting Quote Link to comment Share on other sites More sharing options...
pauln Posted January 14, 2009 Share Posted January 14, 2009 Interesting. But don't most people increasingly allowcate their funds out of the stock market and into fixed instruments as they approach retirement to avoid the potential problems with a market down turn? Someone in their 70's with money at risk in the market is going against the usual and accepted recommandations offered by almost all financial planners. Quote Link to comment Share on other sites More sharing options...
Coytee Posted January 14, 2009 Author Share Posted January 14, 2009 Interesting. But don't most people increasingly allowcate their funds out of the stock market and into fixed instruments as they approach retirement to avoid the potential problems with a market down turn? Someone in their 70's with money at risk in the market is going against the usual and accepted recommandations offered by almost all financial planners. Perhaps you missed the underlying point... Someone can have an IRA full of CD's or fixed annuities (both VERY safe) and still be subject to the RMD requirements. The RMD requirements have NOTHING to do with the allocation within the IRA. If the IRA exists and someone is over age 70 1/2, then they are REQUIRED to take money out according to a minimum scheduel. If they hold stocks, bonds, mutual funds.... ANYTHING in that account, if it's an IRA, it falls under this requirement. For this calander year, the government is saying "we are not going to require you to take money out". You can if you WISH, but you are not required to. We had our first person just today who was already planning his RMD, decide to NOT take it out since he didn't have to. Quote Link to comment Share on other sites More sharing options...
gonzp Posted January 15, 2009 Share Posted January 15, 2009 I just received a letter from my folks' trust (inhearatance) that I don't have to take the yearly withdrawl. Quote Link to comment Share on other sites More sharing options...
SteelerFan Posted January 18, 2009 Share Posted January 18, 2009 My Dad (almost 80 and STILL working) was telling me the other day he's happy he doesn't have to make a withdrawl this year. He said every year he has to make the minimum withdrawl and find something else to invest it in. Quote Link to comment Share on other sites More sharing options...
fini Posted January 18, 2009 Share Posted January 18, 2009 Richard, Since IRA assets may have decreased in value since being deposited, would '09 be a good year to convert traditionals to Roths? Quote Link to comment Share on other sites More sharing options...
Coytee Posted January 18, 2009 Author Share Posted January 18, 2009 Since IRA assets may have decreased in value since being deposited, would '09 be a good year to convert traditionals to Roths? Since one doesn't really know what the future is going to behold, I'd suppose if someone has the funds to pay for the taxes, it's always a reasonable thought. Quote Link to comment Share on other sites More sharing options...
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