Guidant Financial Group Blog

If your IRA or 401(k) is heavily invested in the stock market, 2008 is likely a year you’d like to forget. The market’s performance is particularly painful for those individuals who are taking Required Mandatory Distributions (RMD). IRA holders, who have reached the age 70.5, are required by RMDs to withdraw a percentage of funds from their accounts. Unfortunately, most individuals take this distribution in November or December. In most cases this is not of great concern—HOWEVER in 2007 the market was strong. In 2008, not so much. With most accounts losing money, some individuals are still taking withdrawals based on last year’s value.

THE GOOD NEWS: Congress has taken some positive action in reference to RMDs! The President signed the Worker, Retiree and Employer Recovery Act of 2008 on Dec. 23. Section 201 of the Act temporarily suspends Required Minimum Distributions (RMDs) from IRAs and qualified plans for 2009. RMDs will be required again in 2010 unless Congress renews the suspension. It enables retirees the opportunity to reduce their taxable income for 2009 should they determine that doing so is to their advantage and helps retirees and IRA owners avoid having to liquidate investments in a down market. Without the suspension, they could be forced to sell—most likely at a steep loss due to the stock market downturn—investments in their accounts in order to take the distribution, or face a 50 percent tax penalty on the amount that should have been distributed.