Relief for 2009 Mandatory Retirement Distributions

October 13, 2009Articles The Legal Intelligencer

In recently issued Notice 2009-82, the Internal Revenue Service has provided guidance to taxpayers with respect to their ability to roll over (and therefore avoid tax) on any required minimum distributions they have received in 2009 from certain qualified retirement plans and individual retirement accounts. This guidance includes the extension, until Nov. 30, of the statutory 60-day rollover period. The ability to roll over these distributions was enacted as part of the Worker, Retiree and Employer Recovery Act of 2008, or WRERA, and is intended to provide taxpayers with relief from the consequences of the crash of the financial markets in 2008.

Section 401(a)(9) of the Internal Revenue Code provides required minimum distribution, or RMD, rules for pension, profit sharing and 401(k) plans. These rules are also applicable to individual retirement accounts and eligible deferred compensation plans maintained by governmental employers and tax-exempt entities. Under the RMD rules, minimum distributions to participants in qualified retirement plans must begin by the April 1 following the later of the calendar year in which the plan participant attains age 70½ or retires. In the case of a plan participant who owns 5 percent or more of the employer sponsoring the retirement plan and in the case of IRAs, required minimum distributions must commence by the April 1 following the calendar year in which the participant (or IRA owner) attains age 70½.

For participants in profit sharing, 401(k) and other defined contribution plans and IRA owners, the amount of the RMD for each year is determined by dividing the account balance in the plan or IRA as of the end of the prior calendar year by a distribution factor provided in a table published by the IRS. This distribution factor is the equivalent of the joint life expectancy of the participant (or IRA owner) and a person 10 years younger than the participant (or IRA owner).


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