Required Minimum Distributions, or RMDs usually force investors over age 70 ½ to withdraw money from their IRAs and 401ks each year. In 2009, however, the rules are different.
IRA RMD Rules
The IRS requires all qualified account holders to withdraw a minimum amount from their tax-advantaged retirement accounts each year. This mandatory withdrawal is known as Required Minimum Distribution, or RMD.
IRA RMD rules apply to traditional IRA accounts only. One difference between traditional IRAs and Roth IRAs is that Roths do not have RMD provisions. This is because the contributions made to a Roth IRA have already been taxed. The government no longer has any interest in the monies inside of Roth IRAs because withdrawals from Roth IRAs are tax-free.
However, the IRS does want to be able to tax the value inside of traditional IRAs, which have often been funded either with pre-tax contributions, or by tax-deductible contributions. Either way, the IRS doesn’t want taxpayers to pass on their IRA accounts untaxed, and so requires that distributions from traditional IRA accounts and 401k accounts be made each year after the taxpayer turns 70 ½ years old.
2009 RMD Waiver Exception
In response to the market crash in 2008, Congress passed legislation waiving required distributions from IRA accounts and 401k accounts for both 2008 and 2009. That means that this year, participants in qualified retirement plans will not be required to withdraw any money from their IRAs or 401(k)s, regardless of how old they are.
That means that retirees will not be forced to potentially sell assets at low prices due to market conditions. Doing so could make recovering from retirement account losses difficult because less money remains in the account to grow when the stock market does recover.
IRA account holders who are able to meet their living expenses and other obligations through other means will benefit greatly from not taking a distribution during 2009. Access other accounts or funds and use them instead. You can withdraw money from your IRA or 401(k) in 2010 to replace those dollars if necessary, and count that transaction as your RMD for 2010.