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Retirees Get Reprieve from Required Minimum Distribution
In recognition of the significant decrease in the total value of many retirement accounts, Congress has suspended Required Minimum Distribution (RMD) from retirement plans for 2009.
Normally, individuals, upon reaching age 70½, are required to withdraw annually from their retirement accounts an amount which approximates the total value of the retirement account divided by the individual's life expectancy. (Life expectancy is determined by using an IRS table.) Failure to take the Required Minimum Distribution in any calendar year will usually result in a penalty tax of 50% of the shortfall in the RMD.
While the option of not taking a distribution may not be possible for many taxpayers, those who can defer their 2009 distributions will be saving taxes and increasing the value of their retirement account, which is growing tax-free. In addition, the reduced taxable income to the taxpayer may allow for the taking of income from other sources at a lower tax rate or may help in obtaining the benefits of deductions or credits that would otherwise not be available due to the taxpayer's higher level of income.
At this point, Congress has limited the RMD relief to 2009. Relief for 2010 and beyond is not expected.
Joseph W. Kenny is a director and shareholder of Hamblett & Kerrigan, P.A. and practices in the areas of estate planning and taxation. He is also a Certified Public Accountant with certification as a Personal Financial Specialist. You can reach Attorney Kenny by email at email@example.com.
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