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Don't Forget IRS is Waiving Mandatory IRA Distributions for 2009

May 18, 2009

By Clark Schultz | Money Rates Columnist

The tax rules of the IRS are complicated. That's why it is important that if you know a friend or relative who is at least 70 years old and owns an IRA, that you make sure they understand the IRS has waived mandatory distributions for IRA accounts for this calendar year. For a long time the IRS rule has been that if you are the owner of a traditional IRA, you must start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70��. Every year a different formula determines your mandatory minimum distribution. All distributions are then taxed as income. On December 23, 2008 the President signed into law that for 2009 these mandatory minimum distributions can be waived. The exception would be that if you turned 70�� in 2008, you were still required to take your mandatory distributions by April 1st of this year.

Why did the IRS give seniors this big tax break? Probably the first reason was the unfairness of making seniors sell stocks or mutual funds at a large loss to raise the cash for their distributions and then also tax them. That would be a real double whammy. A second reason was also the political capital that politicans get when they cater to the 85 million people who are senior citizens. Politicians may appear to have the altruistic interests of the seniors at heart, but don't forget many Wall Street lobbyists and donors were happy with the waiver as well. Selling is never good for Wall Street.

If you know somebody over 70 years of age who is still taking these distributions, be discrete, but ask them if they know about the waiver. Maybe they need the distributions to pay their living expenses. After all, this would not be uncommon. But, maybe they don't need to be taking the distributions and they can save money in taxes for 2009. As always seeking the advice of a financial consultants is advisable.

Your responses to ‘Don't Forget IRS is Waiving Mandatory IRA Distributions for 2009’

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9 February 2010 at 2:30 pm

I read in the newspaper that we would not have to take the mandatory withdrawal for the year 2010 also.
what is the ruling for 2010?


4 June 2009 at 4:11 am

Hi, good post. I have been wondering about this issue,so thanks for posting.

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