Change in Required Minimum Distribution (RMD) - 2009

For 2009 the Required Minimum Distribution from a tax advantaged account such as an IRA or 401(k). This means that the RMD for 2009 has been suspended. Below is an article that does a good job of explaining the change and the ramifications of the change. This change is only for 2009.

Congress Revises Retirement-Fund Rules

A new tax law will allow retirees to skip required withdrawals from individual retirement accounts and related accounts this year. The change -- signed into law by President Bush last month -- is intended to give beaten-down nest eggs time to rebound from the brutal bear market. But the new law may also create confusion, particularly for those just starting to take required withdrawals.
Here are answers to questions about the new law:
How do the existing rules governing IRA withdrawals work?
Normally, IRA owners over age 70½ must withdraw money each year. For your first withdrawal, however, the deadline is extended until April 1 of the year after you turn 70½. People who turned 70½ in 2007, for example, had until April 1, 2008, to take their first required distribution.
In a typical year, to calculate how much to withdraw, you look at your account balance as of the previous Dec. 31 -- and then divide that figure by your remaining life expectancy. (Life-expectancy tables can be found in Internal Revenue Service Publication 590.) Most people who inherit IRAs or 401(k)s can spread withdrawals over their own life expectancies.
These requirements also apply to 401(k)s and some other employer-sponsored plans, but not to defined-benefit pension plans or Roth IRAs. (If you are still working, you aren't required to take distributions from your current employer's retirement plan.)
What impact will the new law have?
The new law suspends required distributions in 2009. This gives those who can afford to leave their nest eggs alone a better chance of recovering some of the investment losses they sustained last year.
"They'll have more dollars working for them in the event of a stock-market rebound," says Elizabeth Drigotas, a principal at Deloitte Tax.
If you don't need to pull money out of retirement accounts for living expenses, the new law will also delay the tax you would have owed on your 2009 distribution.
Unless Congress decides to extend the moratorium, those over age 70½ -- along with those who have inherited IRAs or 401(k)s -- will be forced to resume taking withdrawals in 2010. (Note: Neither Congress nor the Treasury Department took any action involving withdrawals, or taxes on withdrawals, for 2008.)
If I turned 70½ in 2008 and had planned to take my first withdrawal by the April 1, 2009, deadline, does the new law permit me to skip it?
No. The law suspends distributions only for 2009. Although first-timers are allowed to delay 2008's distribution until April 1, 2009, the withdrawal still counts toward your obligation for 2008, Mr. Slott says. So, if you turned 70½ last year and decided to wait until close to April 1 of this year to make your first withdrawal, that deadline still applies. To calculate this distribution, you would use your account balance as of Dec. 31, 2007.
What if I turn 70½ this year?
This gets a bit more complicated. In effect, you will have until Dec. 31, 2010 to take your first withdrawal -- even though the IRS will consider that withdrawal to be your second distribution. Here's how it works:
Under the usual rules, people who reach age 70½ in 2009 -- and who wait until early 2010 to take their first withdrawal -- would have to take two distributions in 2010: one for 2009 (their first distribution) and one for 2010 (their second distribution). That second distribution would have to be taken by Dec. 31, 2010. Of course, the new law suspends distributions for 2009. Thus, first-timers -- anyone who turns 70½ in 2009 -- won't be required to make a withdrawal in 2009, or in the first three months of 2010. In short, such individuals simply can skip that "first" distribution.
But Uncle Sam will still want you to take the "second" distribution -- the one for 2010 -- even though, as far as your retirement savings are concerned, it's your first withdrawal. Again, you would have until Dec. 31, 2010, to take that "second" distribution.
Can I still donate money from my IRA to charity without paying income taxes first?
Yes. In October, lawmakers resurrected a tax break available to those who make donations directly from their IRAs to charity in 2008 and 2009. Under the law, individuals age 70½ or older can donate as much as $100,000 from an IRA to a public charity. No taxes are due on the withdrawal, and the donation counts toward a person's required annual withdrawal. This year, of course -- with mandatory distributions suspended -- the tactic loses a bit of its luster. But those who wish to make a direct donation from an IRA can still do so -- income-tax free, says Mr. Slott.
Can I convert some or all of my IRA to a Roth IRA in 2009?
Yes, provided your adjusted gross income is $100,000 or less, you'll be eligible to make such a move. Typically, those taking mandatory distributions from a traditional IRA aren't allowed to turn around and deposit that money into a Roth IRA, Mr. Slott says. (You can take your required payment and then convert all or part of the IRA balance if you wish.) But in 2009, any withdrawals can be used to fund a Roth, he says.