While the new law tax changes in the Emergency Economic Stabilization Act of 2008 were the most significant developments in the final quarter of 2008, many other tax developments may affect you, your family, and your livelihood. These other key developments in the final quarter of 2008 are summarized below. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.
New law waives required minimum distributions (RMDs) for calendar year 2009. A new law enacted in late 2008 provides that retirement plan account participants, IRA owners, and their beneficiaries do not have to take RMDs for 2009. Thus, taxpayers who can take advantage of this change won’t be forced to sell stock or mutual fund shares held in retirement accounts when their value is exceptionally depressed. This change helps retired taxpayers who do not need to rely on their RMDs for living expenses. By not making the RMD for 2009 (or withdrawing less than the RMD) from their qualified plan accounts and/or IRAs, they will wind up with less taxable income for 2009, and, possibly, avoid (or mitigate the effect of) AGI-based phaseouts of tax breaks. They will also have more tax-sheltered amounts to leave to their beneficiaries. There’s no need to show that a retirement plan account or IRA is “in distress” because of stock market conditions in order to qualify for the 2009 RMD suspension. Thus, for example, the RMD suspension applies equally to IRAs invested entirely in FDIC-insured bank-CDs as well as to IRAs invested in depressed-in-value stocks or mutual funds. The suspension of RMDs for 2009 doesn’t help those older taxpayers who must make regular withdrawals (sometimes in excess of the RMD) from their retirement plan accounts and IRAs in order to get by each month.
New law requires qualified plans to offer post-2009 rollover option for nonspouse beneficiaries. A provision in late 2008 legislation requires employer sponsored qualified retirement plans to offer nonspouse beneficiaries the opportunity to roll over an inherited plan account balance to an IRA set up to receive the rollover on the nonspouse beneficiary’s behalf. This rule will become effective for plan years beginning after 2009. Until then, under current rules, qualified plans may, but are not required to, offer nonspouse beneficiaries this rollover option. The rollover option will give much-needed flexibility to those who inherit retirement plan accounts from someone other than their spouse, such as a parent, an uncle, or a same-sex partner. For a long time, nonspouse beneficiaries of IRAs have had access to a rollover-type option that IRS has sanctioned. While nonspouse beneficiaries can’t treat an inherited IRA as their own, they can make trustee-to-trustee transfers to another IRA if the ownership of the new IRA is set up in the same way as the ownership of the old IRA, that is, in the name of the decedent for the benefit of the IRA beneficiary.
Tax Relief Blog
