For calendar year 2009, retirees will have the option of leaving the amount they normally would have to withdraw as a required minimum distribution (RMD) in their accounts.  President Bush recently signed legislation that will suspend the RMD for 2009.  Required minimum distributions, generally, are the minimum amounts that an account owner must withdraw annually beginning the year he or she reaches age 70 1/2 or, if still working, the year in which he or she retires after reaching age 70 1/2.  RMD rules apply to all employer sponsored retirement plans, 401(k) plans, 403(b) plans, and 457(b) plans.  Also included under the RMD rules are traditional IRA’s and IRA based plans such as SEP’s and SIMPLE IRA’s, for example.  Failure to withdraw the full amount required by the applicable deadline will result in the amount not withdrawn being taxed at 50%, which is still applicable for required minimum distributions for calendar year 2008.

The legislation, titled the Worker, Retiree, and Employer Recovery Act of 2008, became public law on December 23, 2008.  This law will temporarily waive the penalty for calendar year 2009 for account owners who do not withdraw their RMD as they are normally required to do so.  This is good news for account owners who have seen a decline in their retirement accounts and have alternative sources of income.