Congress has passed and the President signed (on Tuesday, Dec 23rd) H.R. 7327, the Worker, Retiree and Employer Recovery Act of 2008, a bill that places a one year moratorium on required minimum distributions from Individual Retirement Accounts and defined contribution plans for 2009.
To Clarify my earlier post (and thanks to a sharp-eyed reader who caught my unintended error as I posted in December, before knowing details of the bill):
The suspension of required minimum distributions applies to 2009 distributions, NOT 2008. Therefore, you should have taken the 2008 required distribution before year end. If you did not, you may face a 50% penalty on the amount you "should" have withdrawn.
There may be some exceptions made because of the confusion at year end. BUT, if you did not take a 2008 RMD, you should immediately contact your plan custodian and arrange to do so!
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Minimum Required Withdrawals
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Terry Savage
Terry Savage writes a syndicated personal finance column for the Chicago Sun-Times and for TheStreet.com. Her latest book is "The Savage Number: How Much Money Do You Need to Retire?" Read more at TerrySavage.com.
is there anything new on dealing with not taking an RMD in 2008
I have taken the amount upon realizing the issue
but it was in feb of 2009
how can i avoid the (outlandish) 50% penalty?
SAVAGE SAYS: That was a HUGE error. I don't know of any penalty as high as the one for failure to make the required minimum withdrawal from a retirement plan -- a 50% penalty of the amount that should have been withdrawn. (For 2009, the required minimum withdrawal is waived -- a one-time deal.)
You need help from a CPA to deal with this. Here's what Bankrate.com says you should do if you fail to make that RMD
Failure to withdraw triggers an excess accumulation tax. This levy is 50 percent of the required distribution that you didn't take. For example, you didn't withdraw the required $1,000 from your traditional IRA. The tax charge for your defiance is $500. For a taxpayer in the 25-percent income tax bracket, that's twice what you would have paid in taxes if you'd simply followed the RMD rule.
If you can convince the IRS that your distribution shortfall was due to "reasonable error" and that you're taking steps to rectify the situation, the agency could waive the penalty. In that case, file Form 5329 (part VIII), go ahead and pay the excess accumulation tax and attach a letter of explanation. If the IRS agrees that you shouldn't be penalized, it will refund the excess tax."
Act quickly to deal with this issue!
For someone who writes a personal finance column, you don't seem to understand RMDs very well. The new law covers only 2009. Nobody would be taking RMDs in 2008 that apply to 2009. Therefore, there is no way that they could put money back.
SAVAGE SAYS: I have no idea what you're referring to! I haven't written about RMDs in quite a while -- except a comment on the pending law that would do away with them in 2008 because those required withdrawals are a tremendous hardship on retirees who do not need the money, and would be forced to sell stocks at low prices to comply with the law.
Terry, as a Senior, I am really upset by some of the things which the Fed seems to be doing for the betterment of Wall Street. I have no doubt that the Stock Market will soar, but wonder about those folks with portfolios of Treasuries, CDs, etc. as well as Pension Funds with the same securities. How in the world will these portfolios earn enough money to keep up with the Required Minimum Withdrawals? How long do you think that a Senior's portfolio, say the person is in his seventies, might last at such a clip? This does not include the hidden fees which the mutual funds managers have been slipping into their own pockets over the years.
Printing money is a very dangerous game--at a time when people earn nothing on their money it will cost them more to buy bread, gasoline, and to pay for utility bills. This does not include medical bills and medicine.
Knowing the really dumb politicians who run Chicago, Springfield, Washington D.C., I'm guessing that they will try to make up for their deficits by increasing taxes and will also continue to spend money wildly.
All the savings which you mention in your article will hardly help people who are not working--are they, once again, to trust the fluctuations of the Stock Market? Seems to me that we, as a nation, are following a "Catch 22" solution which will bankrupt what's left of the Middle and Lower Classes. Can't help but wonder if the seeds of a revolution are being sowed by the financial community.