Important IRA Matters

Update on the 2009 Suspension of the Required Minimum Distribution

Earlier in the year, in a previous Wealth Management Newsletter, we reminded our clients that The Worker, Retiree and Employer Recovery Act of 2008 authorized the suspension of the Required Minimum Distribution for 2009. We also wrote a letter to our clients eligible to receive RMDs indicating our default position: we will assume clients wish to receive their 2009 distributions unless we are instructed otherwise by the client.

Many of you have confirmed your desires regarding your distributions through meetings, phone calls and e-mail contacts with us. We would like to remind those of you who have yet to make up your minds to call us if you wish not to take your Required Minimum Distribution this year.

The Required Minimum Distribution suspension pertains to all forms of IRAs (traditional, SEPs and SIMPLEs) and applies to both owners and beneficiaries. Retirement plans, such as 401(k)s, 403(b)s and 457 plans, also benefit.

The greatest advantage of not taking an IRA distribution is tax savings. RMDs are reported as ordinary income on personal income tax returns.

Change of Heart
For those who have already taken their RMD – or who have been receiving monthly distributions from retirement accounts – and now find they do not need the cash, you can return the money to the retirement account, with some limitations.

The IRS has recently issued a new ruling: Notice 2009-82 which allows for a rollover of the assets back into the retirement account until the later of November 30, 2009 or 60 days after the date of distribution.

IRA owners please note: the one-rollover-per-year rule has not changed. If you have already completed a rollover this year, you cannot return your RMD to your IRA. (Rollovers are not the same as direct transfers, whereby money is moved from one custodian directly to another custodian.) In addition, the once-a-year rollover limit means that those receiving monthly payments can return only one of these payments. Those taking one lump sum distribution can roll back the entire amount.

This same once-a-year limitation does not apply to qualified retirement plans, which can roll all - monthly, quarterly, annual, etc.- 2009 distributions into another qualified retirement plan or IRA before the November 30th deadline.

Conversion Opportunity
Any distributions which you have already taken can be converted to a Roth IRA, assuming you meet eligibility requirements, are willing to pay the taxes and do not need the cash.

Normally, if someone over 70 ½ wants to convert a portion of their traditional IRA to a Roth, the individual is required to take their RMD before completing the conversion. RMDs cannot be deposited into Roth IRAs. In 2009, however, any distributions from IRAs can go into to the Roth. Instead of paying taxes on both the RMD and the conversion, you only have to pay taxes on the conversion. For one more year – 2009 - the adjusted gross income limitations of $100,000 still apply.

In a future Wealth Management Newsletter, we will discuss in detail the new Roth conversion rules that take effect in 2010. Beginning in January, the $100,000 cap on adjusted gross income will be lifted, allowing many more individuals to take advantage of Roth conversion opportunities.

StrategicPoint Working with You
If you have any questions about what you can/should do regarding your required minimum distribution, please give us a call so we can walk you through your options.

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