New IRA Law Affects Mandatory Withdrawals

Hoping to give investors a chance for their accounts to recover from the losses incurred in 2008, Congress recently suspended the law requiring owners of IRAs and 401(k)s who are over age 70 1/2, and those who have inherited such accounts, to make a minimum withdrawal in 2009. But this simple idea — a one year break from required withdrawals — is turning out to be not so simple in its execution.

The particulars are set out in the Wall Street Journal article New IRA Law Bewilders Investors. Problems are arising because the IRS and the Treasury Department haven’t provided adequate guidance.

401(k) plan sponsors must get approval from the federal government for their plan documents. These sponsors fear that their suspension of payments will violate their documents and feel compelled to get government approval before enacting any suspension of payments. This government approval is not something quick and easy to come by.

The article includes the following advice:

1) Contact your IRA custodian or the administrator of your 401(k) directly and ask what steps are needed to suspend distributions in 2009;

2) Regarding 2010, ask the custodian or administrator what steps are needed to get the automatic distributions started again; and
3) You may want to roll your traditional IRA assets into a Roth IRA so that in the future you have no required distributions or taxes on future earnings.

For additional information on how new IRS rules may affect you and your estate planning, contact an estate planning law firm.

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