Coastal Senior is a Georgia monthly periodical covering the South Carolina and Georgia low country. Bob Mason is its legal columnist.
Most older readers with IRAs (and those who have inherited one) know that “minimum required distribution” rules force withdrawals every year. Battered by the economy, however, many are groaning at further depleting already shrunken IRAs.
To add insult to injury, the required buying acomplia distribution amount is a percentage of the balance from December 31, 2007. It would be a safe bet that the IRA balance was much higher a year ago.
Congress felt your pain . . . sort of. On December 11, Congress issued rules for 2009 that will allow older IRA owners and those with inherited IRAs to skip required withdrawals for 2009. President Bush is expected to sign.
Notice carefully: The rules apply for 2009. As things stand while this column is being written, these IRA owners remain on the hook for 2008 distributions. Pain remains.
For example, if the required minimum distribution is 10% (the actual percentage is age-based) of the December 31, 2007, balance of $100,000, a $10,000 distribution will be required. That hurts if the December 31, 2008, balance is just $50,000 (maybe because of all the GM stock that was in the IRA).
Normally a 50% penalty applies to amounts that were not distributed that should have been distributed.
Congress suspended the 50% penalty for 2009. If no penalty applies, the reasoning goes, then no withdrawal is required.
One problem, of course, is that many retirees must take out something to live on.
Another problem is that 2009 tax relief will not “feel good” for another year or so. That is something like telling GMChryslerFord that Uncle Sam will help . . . next year sometime.
Treasury To The Rescue?
Treasury might step in. Rumors are swirling around that it may. By the time this issue of Coastal Senior hits the stands it might even be a fact.
Treasury cannot simply issue a blanket suspension of a penalty the way Congress can (and did). However, Congress gives the IRS (a division of the Treasury Department) great flexibility in how it goes about collecting the no-distribution-penalty.
IRS could declare a new valuation date. Instead of maintaining the current rule that requires distributions for 2008 to be based on December 31, 2007 values, it could issue an emergency rule that 2008 penalties would be based on December 2008 values. It might even be tempted to give folks a bit longer to take a required distribution.
So what of people who have already taken 2008 required distributions? First, unless the IRS has changed the rule for 2008 after I wrote this column, I hope you did. Otherwise a penalty will apply. Second, if the IRS does come up with some relief, my guess is that there will be some provision to allow people to “payback” to their IRAs excess distributions that were taken.
So what is the definitive word? In 2009, IRA owners get a break. In 2008, the rumor mill says “maybe”. Check after you’ve read this column!