Advertisement
Retirement

Treasury to Seniors: Drop Dead

IRA owners must act quickly to take required 2008 payouts.

The Treasury Department decided Thursday not to grant relief in 2008 from rules that require Americans 70 1/2 and older to take minimum annual withdrawals from their IRAs, 401(k)s or other retirement plans. The disappointing decision led some of those affected to recall the famous 1975 New York Daily News headline "FORD TO CITY: DROP DEAD," after President Gerald Ford opposed efforts for a federal bailout of New York City.

Advertisement - Article continues below

For months, there's been talk of some sort of break for seniors whose retirement accounts have been battered by the severe stock-market meltdown. Why force seniors who don't need the money to withdraw money from already depleted nest eggs? During the presidential campaign, both Barack Obama and John McCain backed relief. And, earlier this month, Congress passed legislation waiving required payouts in 2009.

Those facts, plus hints from the Treasury (which oversees the IRS) that some sort of relief would soon be granted, led many senior citizens to postpone taking their required minimum distributions (RMDs). But Treasury decided Thursday that it does not have the authority to waive payouts and that any relief short of that -- such as allowing a smaller sum to be taken -- would be complicated and confusing, and would not be fair to seniors who already had taken their RMDs for the year.

Advertisement
Advertisement - Article continues below

So, if you've been delaying a withdrawal, delay no more.

Advertisement - Article continues below

Contact your IRA or 401(k) sponsor as soon as possible to request the payment. (If you have parents or grandparents who may be affected by this decision, make sure they know about it.)

If you have more than one IRA, your RMD for 2008 is based on the total balance of all of your IRAs as of December 31, 2007, but you can take the money from any one or combination of the accounts. If you have more than one 401(k), a minimum amount must come out of each plan.

Failure to withdraw the minimum amount by December 31 will trigger one of the most vicious penalties in the tax law: The IRS will claim 50% of the amount you should have withdrawn.

There is one exception to the December 31 deadline -- for those who reached age 70 1/2 during 2008. Because this will be their first RMD, they can delay it to as late as April 1, 2009. Doing so normally requires an account holder to withdraw -- and pay tax on -- two years' worth of distributions in a single year, because the second-year payout would be due by December 31, 2009. And that could push you into a higher tax bracket. But that won't be a worry in 2009, since Congress has waived the RMD rule for the year.

Advertisement

Most Popular

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)
tax deadline

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)

Between due dates for IRA or HSA contributions, paying estimated taxes and other deadlines, there's more to do by July 15 than just filing your federa…
July 10, 2020
Know Why Your Credit Score Changes: 9 Money Moves to Consider
credit & debt

Know Why Your Credit Score Changes: 9 Money Moves to Consider

Your credit score is a key indicator of your financial well-being and of the risk you pose to lenders. How good is yours?
July 10, 2020
65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020

Recommended

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)
tax deadline

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)

Between due dates for IRA or HSA contributions, paying estimated taxes and other deadlines, there's more to do by July 15 than just filing your federa…
July 10, 2020
Saver's Credit: A Retirement Tax Break for the Middle Class
Tax Breaks

Saver's Credit: A Retirement Tax Break for the Middle Class

Your retirement contributions could be the key to a lower tax bill.
July 9, 2020
Retirees Get Another Break with Expansion of RMD Waiver
required minimum distributions (RMDs)

Retirees Get Another Break with Expansion of RMD Waiver

The CARES Act cancelled "required minimum distributions" for 2020...and the IRS just expanded that relief to help more seniors and give more time to u…
June 24, 2020
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020