Treasury Ducks 2008 RMD Relief

While President Bush is expected to sign relief for 2009 RMDs (see  White House Confirms Bush to Sign RMD Bill ), the Treasury Department and Internal Revenue Service determined any further change “should not be undertaken,” according to a letter by Treasury Assistant Secretary for Legislative Affairs Kevin Fromer to legislators, including Congressman George Miller (D-California), chairman of the House Education and Labor Committee, because implementation would be “complicated and confusing for individuals and plan sponsors.”  

Kevin Fromer, the Treasury’s assistant secretary for legislative affairs, wrote in a letter to Congress:   “Any steps 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 required minimum distributions. In addition, implementation of such changes would be complicated and confusing for individuals and plan sponsors. Thus, all individuals who are subject to required minimum distributions for 2008 should take their distribution under the existing rules and, as a result of relief provided by Congress, they will be entitled to a complete wavier of the requirement to take any distributions for 2009.”

Congress thought the Treasury Department would address 2008 distributions through regulation, Education and Labor Committee spokesman Aaron Albright said in a statement, according to Bloomberg.

“We are disappointed that the Treasury Department declined to act,” Albright said, according to Bloomberg, noting that Congress acted with the “understanding that Treasury was actively working on a solution for this tax year.”

Congress approved legislation earlier this month that will defer required distributions in 2009, but it didn't address retirees who have had to take distributions this year.   Several in Congress had thought that the Treasury Department would address 2008 distributions through regulation, rather than legislation (see  House Passes Pension, RMD Relief ).  

Generally, a RMD is calculated for each account by dividing the prior December 31st balance of that IRA or retirement plan account by a life expectancy factor that IRS publishes.   Of course, it seems highly likely that the balances that the 2008 RMD will be based on have been subject to a great deal of market volatility since then - resulting in a disproportionately large distribution requirement - at a time when the remaining market value of these accounts may well be severely strained by the requirement.   And if seniors (generally speaking, those over age 70 ½) do not withdraw the proper amount, they are subject to a penalty of 50%.  

One Exception

However, there is one exception to the December 31 deadline - for those who reached age 70 ½ this year. Because this will be their first RMD, they can delay it to as late as April 1, 2009.   Now, doing so normally requires an account holder to withdraw (and pay taxes on) two years' worth of distributions in a single year, because the second-year payout would be due by December 31, 2009 - and that could boost the participant into a higher tax bracket under normal circumstances.   However, that won't be a worry in 2009 - since Congress has waived the RMD rule for the year.

A copy of the December 17 letter from Kevin Fromer to Congressman George Miller is available  HERE

(thanks to Dave Baker at  BenefitsLink for sending that along).