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IRS ALLOWS ADDITIONAL TIME TO ROLL OVER 2009 RMDS FROM IRAS AND EMPLOYER-SPONSORED PLANS

Fall 2009

On December 23, 2008, President Bush signed The Worker, Retiree, and Employer Recovery Act of 2008 into law. The law waived required minimum distributions (RMDs) for 2009 from IRAs and employer sponsored defined contribution plans (including 401(k) and profit-sharing plans).

In many cases, because the law was passed so late in 2008, and because many individuals and plan sponsors were confused about how to comply with the new rules, IRA owners and pian participants received RMDs they weren’t required to take, and which they didn’t want. Individuals who received such RMDs were allowed to roll them into an IRA or eligible retirement plan (even though RMDs aren’t usually eligible to be rolled over). Some individuals failed to complete their rollovers within 60 days, or weren’t aware of their ability to roll over the funds. In some cases, employees who received RMDs as part of substantially equal periodic payments, which are also generally ineligible for rollover, were uncertain whether a rollover was allowed.

In Notice 2009-82, the IRS provides relief to plan participants and IRA owners who have already received an unwanted 2009 RMD, and for whom the 60-day rollover period has expired. Under the Notice, these individuals will generally have until November 30, 2009, to complete a rollover. For employer-sponsored plans, the relief applies to any payment that is equal to the 2009 RMD, and to any substantially equal periodic payments the employee received during 2009 that included RMDs. This relief applies to IRA owners, plan participants, and spouse beneficiaries. (Note: this special rule does not apply to RMDs received in 2009 for 2008.)

The Notice cautions that the one-rollover-per-year rule still applies to IRAs. Under this rule, which applies separately to each IRA, only one rollover from a particular IRA can be made to any other IRA in a 12-month period. Roth conversions do not count as a rollover for purposes of this rule.

The Notice also provides additional guidance to taxpayers and plan sponsors in the form of Q&As, including the following:

  • The deadline for an employee or a beneficiary that had until the end of 2009 to choose between receiving RMDs under the 5-year or the life expectancy rule is extended until the end of 2010.
  • In plans that permit a nonspouse beneficiary to directly roll over a deceased participant’s account balance, the nonspouse designated beneficiary has until the end of 2010 to make the direct rollover and use the life expectancy rule with respect to an employee who died in 2008.
  • In general, the rollover can be back to the same plan that made the distribution (if the plan permits such rollovers).
  • The 2009 RMD waiver does not apply to substantially equal periodic payments taken in order to avoid the 10 percent early distribution tax on distributions prior to age 59Vi, even if the individual is using the "RMD method" to calculate those payments.

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Any tax advice contained herein is of a general nature. You should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as financial planners.