Tax News

CCH (cch.taxgroup.com) reports:

  The Treasury Department and the IRS will not suspend 2008 required minimum distributions (RMDs) from IRAs, Code Sec. 401(k) plans and similar arrangements, according to a December 17 letter from a senior Treasury official to Congress obtained by CCH. "Individuals who are subject to RMDs for 2008 should take their distribution under existing rules," Kevin I. Fromer, Treasury assistant secretary for legislative affairs, told House Education and Labor Committee Chairman George Miller, D-Calif.

  CCH Comment. At least certain members of Congress did not press for suspension of 2008 RMDs in the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-343) under the assumption that the Treasury and IRS would take care of 2008 RMDs administratively. The Act suspends RMDs for 2009 only. Now, the Treasury and IRS, after considering the matter, have decided that they must pass on giving any 2008 relief. Whether Congress can provide relief retroactively in the stimulus bill slated for January remains questionable. Likely, this will remain a developing story that will not end with the Treasury letter. CCH asked the Treasury to elaborate on the letter but did not receive a response by press time.

Distributions

  Individuals must receive the entire balance of their IRA or similar arrangement or start receiving periodic distributions from it by April 1 of the year following the year in which they reach age 70-1/2. Individuals who turned 70-1/2 in 2008 have until April 1, 2009 to take their 2008 distribution. However, individuals who reached age 70-1/2 before 2008 must take their distributions by December 31, 2008. Individuals who fail to take a RMD risk a 50-percent excise tax.

  "2008 RMDs are based on plan balances from December 31, 2007, and the stock market has seen major declines in October and November of 2008," B. Janell Grenier, Law Office of B. Janell Grenier, West Chester, Pa., told CCH. "This may require seniors (if they have not already done so) to liquidate their assets in order to make the RMDs and take losses whereas holding on to those assets might bring recovery."

Administrative Relief

  After Congress suspended RMDs for 2009, many practitioners and taxpayers expected the Treasury and the IRS to provide some type of relief for 2008 RMDs. Administrative relief would not necessarily have to be suspension of RMDs for 2008, Edgar Adkins, partner, Grant Thornton, LLP, Washington, D.C., told CCH. "The Treasury and the IRS could have allowed taxpayers to use a date closer to today (rather than December 31, 2007) on which to calculate their distributions." This would result in a smaller RMD for many individuals.

Not for 2008

  Now, it appears that no relief of any kind for 2008 RMDs is forthcoming from the Treasury and the IRS. "Because Congress has provided broad and direct relief [for 2009]...the Treasury and the IRS have determined that any further change to the RMD rules should not be undertaken," Fromer wrote. He explained that any steps the Treasury could take would be substantially more limited than the relief enacted by Congress and could not be made available uniformly to all individuals subject to RMDs. "Such changes would be complicated and confusing for individuals and plan sponsors."

  "We are disappointed that the Treasury declined to act to help those seniors forced to take withdrawals from their depleted retirement accounts," Aaron Albright, a spokesperson for the House Education and Labor Committee, told CCH. "Congress acted to provide relief for seniors in 2009 with the understanding that the Treasury was actively working on a solution for this tax year."

Looking Ahead

  "Some people have asked whether the fact that RMDs are not required for 2009 will mean that people will have to make two RMDs for 2010," Grenier told CCH. "While regulations will likely be issued by IRS, it appears that the general consensus is that the RMD will be skipped for 2009 and that only one RMD will be required for 2010. However, because no RMD will be taken for 2009, the year-end balance will likely be higher (unless the individual has incurred losses), meaning that later RMD amounts will be greater in amount."

  By George G. Jones and George L. Yaksick, Jr., CCH News Staff

Treasury RMD Letter