Retirees over the age of 70 1/2 have, prior to 2009, been required to withdraw a small percentage of their retirement accounts (401k, IRA’s, etc.). This is the government’s way of gaining tax revenues on money that had been growing for years tax deferred. The person taking the distribution was required to pay income tax, at their current tax rate, on any money withdrawn.
But the rules have changed in the year 2009 only. Persons who are over the age of 70 1/2 will NOT be required to take the Required Minimum Distributions (RMD) in 2009. Recent legislation was passed so that retirees are not required to withdraw money out of accounts that have been decimated by the stock market. This means that people can keep money in their retirement plans that they would normally have to withdraw in 2009. The idea is for people to keep more money invested, with the hope that the stock market recovers and more of their money is still at work. Many people do not need to take this extra income and would prefer to leave their money invested and not have to pay extra taxes. This means a lower tax bill for the people who choose to keep their money invested in 2009. Of course, if people need to take distributions in 2009, they still may do so, and they would be required to pay income taxes on these withdrawals. The 2009 RMD rule also applies to other types of retirement accounts such as 403b plans.
It’s important to note that this RMD rule only applies in 2009. In 2010, retirees will again be required to take their required minimum distributions (RMD).
| Tags: 403b plans, extra income, income tax, income taxes, ira, legislation, money, required minimum distributions, retirement accounts, stock market, tax rate, tax revenues, withdrawals | ||
| Posted in Retirement, Taxes |
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