Retirees over age 70½ normally must take required minimum distributions from their retirement accounts and pay income tax on the withdrawal. But for 2009 only, retirees don’t need to take any withdrawals from their retirement accounts. The Worker, Retiree, and Employer Recovery Act of 2008 issued a waiver of 2009 required minimum distributions shortly after retirement account balances plummeted in 2008.
Seniors who already took a withdrawal from their IRA, 401(k), or other qualified retirement account this year have until November 30 or 60 days after the date the distribution was received, whichever is later, to deposit the money back into their retirement accounts to avoid income tax on the withdrawal, the Internal Revenue Service recently announced. Retirees who don’t need to immediately spend the cash can lower their tax burden by putting a 2009 required minimum distribution back into an IRA or another retirement plan.
401(k) and IRA owners will need to take distributions in 2010 under current law. The withdrawal amount is calculated by dividing the balance of your retirement accounts by your life expectancy as determined by the IRS. Seniors who fail to withdraw the correct amount must pay a 50 percent penalty and income tax on the amount that should have been withdrawn. Retirement savers who turned 70½ this year must make their first required minimum distribution by December 31, 2010.