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Congress gives Vail Valley investors a break

Charlie Wick, Tina DeWitt and Todd DeJong
Vail, CO, Colorado

Although it sounds strange, Vail Valley investors may encounter situations in which they have to accept money even if they’d rather not.

Such is the case with required minimum distributions from your traditional IRA, 401(k) or other employer-sponsored retirement plan. But thanks to recent legislation, you can ignore the “required” part of those distributions ” at least for a year.

Lawmakers recently placed a one-year moratorium on taking required minimum distributions for 2009. If you’re not familiar with the rules governing the distributions, here’s a little background: Generally, the IRS requires you to begin taking required minimum distributions in the year in which you turn 70-1/2, or no later than April 1 of the following year.



For example, if you turn 70-1/2 in 2009, you would normally be required to take your first required minimum distributions by April 1, 2010. You must also think about required minimum distributions if you are a beneficiary of someone else’s IRA, 401(k) or other retirement account, because when the account owner dies, regardless of age, you must generally begin taking distributions. This is also true if you are the beneficiary of a Roth IRA, even though Roth IRA owners are never required to take distributions.



But thanks to the new legislation, you can skip the required 2009 distribution if you reach 70-1/2 in 2009 or if you’re a beneficiary currently required to take them. You also have until Dec. 31, 2010, to accept the 2010 required minimum distribution, which will be based on your retirement account balance at the end of 2009.

Why did Congress decide to provide this holiday for 2009? For the answer, you need look no farther than your IRA or 401(k) account balance. As you are well aware, 2008 was not a stellar year for the stock market. Consequently, as 2008 draws to a close, the market value of your IRA or 401(k) is probably considerably lower than it was in earlier years. This could have been a problem for you if you had to start taking required minimum distributions in 2009, because these distributions are based, in part, on your account balance at the close of the previous year – which means you may well have had to sell some stocks or other investments in your retirement plan when their price was down.



To help people avoid having to sell low, Congress acted.

Ultimately, you will have to end up taking distributions again. But before that happens, take some time to decide how large a distribution you should accept each year. If you need the money, you might have to take out more than the required minimum distribution. But if you can get by on just the minimum, you may want to do so, thereby keeping as much of your retirement account as possible in a tax-deferred account.

For now, if you have any questions about taking required minimum distributions in 2009, contact your financial and tax advisers.

Charlie Wick, Tina DeWitt, and Todd DeJong are financial advisers with Edward Jones Investments. They can be reached in Eagle at 970-328-4959, in Edwards at 970-926-1728, and in Avon at 970-845-1025.


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