You would probably be hard pressed to name a positive result of the 2008 market crash, but Congress did make one temporary change that benefited retirees over age 70-1/2. A one-year moratorium on required minimum distributions (RMD) from IRA and 401(k) accounts was enacted for the year 2009.
This helped seniors in two ways. First, since all distributions from traditional IRA and 401(k) accounts are subject to income tax, postponing the distribution delays the tax hit. A second benefit was giving the retirement funds extended time to recover at least a portion of the losses before forced withdrawal.
But in 2010, we are back to the old rules. For all retirees over age 70-1/2, a minimum distribution must be taken. Failure to do so will result in a substantial penalty by the IRS. Some tax advisors are encouraging retirees to wait until the last minute in 2010 to take the distribution. This will allow the funds to continue to grow as long as possible. For some folks, hope springs eternal – there is always the chance that Congress could act to extend the moratorium for mandatory distributions for another year. Keep your calendars handy and your ear turned toward Washington, D.C.