The Worker, Retiree, and Employer Recovery Act of 2008 provides for several alternatives for individuals in 2009. Due to the fact that the financial markets have dramatically reduced their values in the last quarter of 2008, the government felt it would be unfair to require individuals to take the minimum distribution in 2009 based on the value as of 12/31/08. Therefore, they have suspended the requirement that a distribution has to be made if a person is 70-½ as previously required.
In this manner, a person may allow the normal withdrawal to remain in the IRA so that it will hopefully come back in value and continue to build the account rather than have it be reduced. In prior years, if you did not take a distribution which was at least the minimum distribution required, the amount that you did not withdraw was taxed at an exorbitant rate of 50%.
The law that suspends the required minimum distribution in 2009 applies to all defined benefit plans: 401k plans, 403b plans, 457b plans, and IRA plans.
A second option is that a person may continue to withdraw funds from their IRA (not 401k or other qualified plans) and make charitable deductions directly from the IRA to the charity. The owner of the fund must be over 70-½, but the distribution that is being made may count towards the minimum required distribution.
Therefore, if a person had an interest in making charitable contributions or had pledged certain amounts to various charities, it would make considerable sense to have these funds from the IRA used to pay the charitable contribution rather than other liquid assets. However, the funds must be paid directly from the holder of the funds to the charity, and the funds may not pass through the hands of the account owner. This contribution may be made at any time during the year, so it may require a thoughtful decision as to when the contribution should be made based on when a person may feel the account will either increase or decrease in value.
Naturally, with any tax related matter, it is important to obtain advice in advance prior to the decision being made as these options are irreversible once made.
By: Hyman G. Darling, Esq.
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