Bill Suspends Minimum Required Distributions; Implications for Charitable IRA Rollovers

Bill Suspends Minimum Required Distributions; Implications for Charitable IRA Rollovers

News story posted in Legislative on 17 December 2008| 16 comments
audience: National Publication | last updated: 18 May 2011
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Summary

Congress has passed and sent to the President for signature H.R. 7327, the Worker, Retiree and Employer Recovery Act of 2008, a bill that places a one year moratorium on required minimum distributions from Individual Retirement Accounts and defined contribution plans for 2009. Although the intent of the legislation is to give retirees an opportunity to recoup financial losses suffered in the last year, it may adversely affect some charitable IRA rollovers.

Editor's Note: Our initial reporting stated participants would be able to recontribute MRDs made in 2008 back into their plans. This was based on a press release from Senator Olympia J. Snowe's office (R-Maine) that PGDC Editors misconstrued as applying to the current bill.

Full Text:

Congress has passed and sent to the President for signature H.R. 7327, the Worker, Retiree and Employer Recovery Act of 2008, a bill that places a one year moratorium on required minimum distributions from individual retirement accounts and defined contribution plans for 2009.

Although the intent of the legislation is to give retirees an opportunity to recoup financial losses suffered in the last year, it may adversely affect charitable IRA rollovers.

Under the Pension Protection Act of 2006, individuals age 70½ or older are permitted transfers up to $100,000 per year directly from their Individual Retirement Accounts to charity without having to report such amounts as income. The Emergency Economic Stabilization Act of 2008 extended these provisions through the end of 2009.

In addition, individuals who reach age 70½ and are required to make minimum required distributions can direct the entire amount (subject to a $100,000 limit) to charity in satisfaction of their minimum required distribution.

Since some donors elect to contribute only their MRDs to charity in lieu of adding them on top of their other taxable income, the new legislation will eliminate this important incentive through the end of 2009 at which time the current charitable IRA rollover itself will also expire. Others who give from their IRAs regardless of the new MRD rule will be unaffected.

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Comments

CGA/RMD Update?

I am new to this discussion. As legislation stands today ca a 70 1/2 roll over 100k or not without reporting

charitable rollovers...

Although the general intent of the legislation is to give retirees an opportunity (limited IMHO) to recoup financial losses suffered over the last year, it may adversely affect charitable rollovers. Just leaves the lottery for many people to hope for!

RMD Holiday

Any idea if this would apply to clients taking distributions under 72T ??

RMD Holiday and Rule 72T

Typically, with Rule 72T the taxpayer has made this choice voluntarily and must continue to take distributions for 5 years or until reaching age 59 1/2, whichever comes later. That was the deal the taxpayer accepted. RMD's on the other hand are imposed by the IRS based on the taxpayer having reached age 70 1/2. Nothing voluntary about it. Just my opinion, but any RMD holiday is not likely to include those taking distributions under 72T.

RMD 2008 - 2009

Participant becomes 70 1/2 in 2008, but is not required to take distribution for 2008 until April 1, 2009. Separate requirement for 2009, subject apparently to the new legislation waiving the 2009 distribution. Question - if the 2008 distribution is not made in 2008, is that amount deferred by the new legislation, along with the 2009 RMD? Or, must the 2008 RMD be taken by 4-1-09 without regard to the new legislation?

HR 7327 only applicable for next year's RMD (2009)

The waiver is only for 2009 calendar year. All 2008 RMD must be made by December 31st this year. RIA sent this out on Dec. 13th which makes it pretty clear as to what is required for this year. Whether or not in 2009 there will be legislation that allows recontribution of 2008 RMD payment is not clear at this time. "Pension Act waives required minimum distributions for calendar year 2009 The stock market's decline has been cruel to all investors, but doubly so for the millions of people who are required to receive required minimum distributions (RMDs) from qualified retirement plans and IRAs that are invested heavily in stocks or mutual funds. Because of the way in which RMDs are calculated (i.e., based on the previous year's closing value), the law has forced these individuals to receive a disproportionately large portion of their remaining account balance. And they have been forced to sell stock or mutual fund shares at exceptionally depressed values. This double hit affects not only retirees but also beneficiaries of qualified plan accounts and IRAs who must take minimum distributions from the accounts they inherited. The Pension Act (H.R. 7327, the

2008 RMDs

Suggest you remove "and enable retirees to recontribute amounts they were required to withdraw in 2008 back into their accounts" from your emailed summary to avoid unnecessary confusion, since the bill does not appear to contain such a provision:

Recontribution of 2008 RMD?

I could not find this cited in the bill either. Where did your cite (if any) come from?

Relief for 2008 or 2009?

The statutory language provides relief only against 2009 RMDs, making the relief SNAFU unless you think the markets are likely to decline another 30-40-50-60-70% in 2009. Not impossible, I guess, given the way things are going, but I sure hope not.

Recontributions of 2008 Amounts

We based our reporting on the December 11 release by Senate Finance Committee member Olympia J. Snowe, R-Maine, December 11 that stated in part, "Furthermore, the legislation would allow retirees to recontribute to their retirement accounts the amount they were required to withdraw in 2008." However, we do not find a recontribution provision in the text of the bill. We later determined Sen. Snowe was referring to separate legislation.

Senator Snowe not referring to 7327

The quote from Rep. Snowe was not referring to 7327 but rather was referring to legislation she introduced Monday. From her site: Furthermore, Senator Snowe cited legislation she introduced on Monday that will go further to help retirees by delaying the mandatory withdrawal of savings through 2010. Such a suspension will potentially give retirement accounts, such as IRAs and 401(k)s, an opportunity to recoup financial losses suffered in the last year. Furthermore, the legislation would allow retirees to recontribute to their retirement accounts the amount they were required to withdraw in 2008.

Recontribution of 2008 withdrawals

Having just forwarded this article to my colleagues, I will be very disappointed if you are incorrect about the recontribution of 2008 withdrawals. Do you have a citation to that section of H.R. 7237?

return of 2008 minimum required distributions

Obviously the return of 2008 distirbutions in the remaining days of '08 should reduce the taxable amounts rec'd in '08....but what the treatment is of redeposits of '08 distributions in '09 really will need an IRS ruling....

A thought and a question

Although the law allows retirees to recontribute funds required to be withdrawn this year, some retirees may find it hard to fund surplus dollars to use for the recontribution. Are the dollars required to be withdrawn in 2008 subject to federal income tax for 2008?

Not the law yet

I believe the ability to recontribute 2008 withdrawals is only a proposed law, not a provision in H.R. 7327, the Worker, Retiree and Employer Recovery Act of 2008.

Not for 2008

I don't believe this new law will "enable retirees to recontribute amounts they were required to withdraw in 2008 back into their accounts."

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