If you're a senior fortunate enough not to need to withdraw money from your IRA, you get a special break this year. For this year only, those required withdrawals have been suspended. And even if you've already taken money out, you can return it to your IRA without penalty if you choose.
Minimum required distributions from retirement accounts after age 70-and-a-half are one of the most difficult, annoying and nonsensical regulations that seniors must confront. The idea stems from the fact that the government let you grow your money tax-deferred in your retirement plan. And they want to make sure they get their cut before you die by requiring you to withdraw from your account during your senior years.
Failure to withdraw enough money results in steep penalties, so every year, seniors and their IRA custodians must calculate the correct amount -- based on the total asset value of all retirement accounts at the end of the previous year.
But not this year. For 2009, the required minimum withdrawal rules have been suspended. That's because Congress recognized that many seniors lost a fortune in their retirement investment accounts. They were forced to withdraw last year, based on the higher 2007 year-end value of their account, even though they lost money in the second half of last year.
Eliminating the forced withdrawals for 2009 was designed to give people who didn't need the cash a chance to rebuild their portfolios. It was a shame the government couldn't have acted more quickly, eliminating withdrawals last year. Then the money left in the accounts could have benefited from the 50 percent rebound since the lows last March.
But better late than never. So the required minimum withdrawal is not required for 2009.
There's good news if you already took one or more withdrawals from your IRA this year. You can put the money back -- without penalty -- to let it continue to grow tax-deferred. This applies to all withdrawals from defined-contribution plans, such as IRAs, 40l(k)s, 403(b)s and even to annuity payments received from investments within these plans.
The return provision does not apply to pension checks received from defined benefit plans. And another important note: Those who are withdrawing from inherited IRAs do not have to withdraw in 2009, but they may not return withdrawals already taken this year.
There always has been a 60-day period in which you can do one withdrawal from an IRA and then return it, or put it another IRA. It's called a "rollover." But the special provision for 2009 allows you to return multiple withdrawals made during the year. They recognize that many seniors take checks on a monthly basis and didn't know the withdrawals were not required this year.