A Bit of Relief for Stock-Shocked Retirees

A new law allows retirees more time to recover from stock market losses.

ByABC News
September 9, 2008, 7:22 AM

Feb. 3, 2009 — -- As 2008 wound to a close with stock prices down 35 percent or more, one group of investors in particular had reason to be unhappy.

That group was retirees older than 70½ who were forced to take withdrawals from ravaged retirement accounts. Last year, many of these folks had postponed their withdrawals as long as possible, hoping the IRS or Congress would show them mercy by waiving their required withdrawals for 2008.

That never happened.

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Instead, there is a measure of relief in place for 2009. Retirees and others will be allowed to skip their required minimum distributions this year, giving retirement accounts, hopefully, a chance to recover a bit from last year's beating.

The main beneficiaries of this waiver will be retirees who do not need to tap tax-deferred retirement accounts to cover expenses. If you're in that category, contact the company that holds your IRA or other retirement account to find out what you need to do to skip your usual withdrawals. This is particularly true if you receive your required distribution automatically each year.

The waiver of the minimum distributions requirement is the result of legislation passed by Congress and signed by former President Bush less than a month before he left office. It applies to traditional IRA, 401(k), 403(b) and 457 accounts, but not traditional, defined benefit pension plans.

The relief from the usual required minimum distributions affects mainly retirees older than 70½. But it will also benefit beneficiaries who inherited retirement accounts and were supposed to drawn down the accounts. They will now gain an extra year of deferred taxation.

The waiver is relatively straightforward, but there is one wrinkle. If you turned 70½ last year and postponed taking your first required distribution until early this year as allowed by law, you still must take that 2008 distribution by April 1 of this year. And then, like others, you can skip the 2009 withdrawal.