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Dear Dr. Don,
Did the mandatory withdrawal from the IRA when one gets 70½ years old get modified to age 75, or is that change still pending? Why not completely eliminate the "mandatory withdrawal" from an IRA account?
-- Tony Taxing
Dear Tony,
The government did mete out a slight reprieve for IRA account holders subject to required mandatory distributions, or RMDs, in the 2009 tax year. Retirees won't have to take an RMD for 2009. (They still had to take a 2008 distribution, if required.) You can read more about it in the Bankrate feature "'08 nest egg withdrawals."
The president of the Investment Company Institute, Paul Schott Stevens, was quoted in a recent Bloomberg news story as saying retirees shouldn't be forced to make withdrawals from their 401(k) and IRA retirement savings plans until age 75.
There have been some related calls to arms, but I'm not aware of any congressional action in the current legislative session to enact that change.
The logic behind required minimum distributions is that the government allowed you to defer taxes on deferred income placed in retirement accounts, but it was never the government's intent to allow that deferral to continue on forever. The piper is to be paid.
If it's any consolation, the government has taken a big tax hit on the market meltdown, too. Your shrinking RMD means smaller tax payments.
A stretch IRA, as championed by Ed Slott, allows the beneficiary who inherits an IRA to defer taxes over a beneficiary's lifetime. This Bankrate interview with Slott, who edits Ed Slott's IRA Advisor, explains this and other retirement account strategies.
While it doesn't help you with required minimum distributions, making sure your beneficiary at least has the option of a stretch IRA is sound retirement planning.
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