Changes to Required Minimum Distributions for 2009

Congress has passed a change to the Retirement Account rules that require taxpayers to take minimum annual withdrawals after age 70 1/2. If the president signs the bill as expected, the change will be effective for tax year 2009.

Don't be confused and don't fail to withdraw for 2008. There is no change to the rules for required minimum distributions for 2008. The penalty for failure to withdraw the required distribution is onerous - 50% of the required amount not withdrawn.

I proposed a similar change to Indiana senators Bayh and Lugar, and retirement industry experts, several weeks ago. However, I hoped that the change would have been effective for 2008, and it will not be.

RMDs reduce account balances. This is not a good strategy for taxpayers who don’t need the money to live on and who want to keep compounding the money in the account, but the government wants distributions to occur so that they can be taxed.The amount of the RMD is calculated on your retirement account balance at the end of the previous year. In general terms, if your account is worth 40% less now than last December, your RMD would be 40% less if calculated on today’s balances as opposed to last year’s balance. A lower RMD would leave more in the account to compound and grow. A higher RMD further depletes an already devastated account.

The time is now to strategically plan to stop wasting money on taxes you are not required to pay.