Richard
Elite Member
- Joined
- Apr 6, 2000
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- Knoxville, TN
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Public service announcement...
Because the stock market has imploded, our government has thought it to be gracious to not force people to take a RMD (required minimum distribution) for calander year 2009.
Upshot of how this typically works (for those who might not be clear)
Once you reach the age of 70 1/2, you are required to take distributions out of your traditional IRA. The calculation of the required amount is basically done by taking the value of ALL of your retirement accounts on the PRECEEDING December 31, dividing it by your life expectancy (tables provided in various places). The amount done by this calculation is the MINIMUM you MUST take out of your retirement account.
Here's the problem...and I'll use 12 months ago to try to better illustrate it
If someone age 75 had a $500,000 IRA value last December 31, 2007 and the market might have been at maybe... say... 14,000
If they waited until this past November (2008) to take the money out, the calculation is $500,000 divided by their "divisor" or 22.90 (as obtained from the life tables) So we have 500,000/22.90=$21,834 as the minimum this person must take out of their IRA. If they FAIL to do so, then the IRS penalty for failure to take proper amount out, is 50% of the amount not taken out. If the distribution was skipped alltogether, then 50%x21,834 would give an IRS penalty of $10,917. You really don't want to screw this up!! By the way, this amount would equal to 4.37% of the $500,000
Now... here's where it gets interesting.
If the person took the distribution out on January 1, then presumably, they had an account value of $500,000 +/- some pocket change. What however, if they waited until November when the market might have been at 8,500 and their account worth $300,000?
They're screwed.
The RMD is based on PRIOR December 31 value and the fact that the person waits and the market tanked on them doesn't matter to the IRS. So, they'd still have to take out $21,834 on an account worth $300,000 or 7.28% of the current account value.
This is one area where people can really get whammied.
Seems our government has decided it would be good politics to allow an exemption for this calander year and not require people to take out their RMD's. Some people can afford to not take it out and this might be a good thing for them. Other people can't afford to not have their money and though this might be a nice gesture, it is an empty lifeboat for these people.
I've attached a pdf that I found doing a simple google, I've got no association with the people that created it, I just wanted to share something that went into more detail.
So, if you, your parents, friends who might have some means and not HAVE to take money out of their IRA's this year, then make sure they find out that they might not have to.
I have nothing to do with the attachment and am not affiliated with them in any way. I simply did a google search to find some more details on the subject and picked that one out.
This concludes today's public service announcement...
Because the stock market has imploded, our government has thought it to be gracious to not force people to take a RMD (required minimum distribution) for calander year 2009.
Upshot of how this typically works (for those who might not be clear)
Once you reach the age of 70 1/2, you are required to take distributions out of your traditional IRA. The calculation of the required amount is basically done by taking the value of ALL of your retirement accounts on the PRECEEDING December 31, dividing it by your life expectancy (tables provided in various places). The amount done by this calculation is the MINIMUM you MUST take out of your retirement account.
Here's the problem...and I'll use 12 months ago to try to better illustrate it
If someone age 75 had a $500,000 IRA value last December 31, 2007 and the market might have been at maybe... say... 14,000
If they waited until this past November (2008) to take the money out, the calculation is $500,000 divided by their "divisor" or 22.90 (as obtained from the life tables) So we have 500,000/22.90=$21,834 as the minimum this person must take out of their IRA. If they FAIL to do so, then the IRS penalty for failure to take proper amount out, is 50% of the amount not taken out. If the distribution was skipped alltogether, then 50%x21,834 would give an IRS penalty of $10,917. You really don't want to screw this up!! By the way, this amount would equal to 4.37% of the $500,000
Now... here's where it gets interesting.
If the person took the distribution out on January 1, then presumably, they had an account value of $500,000 +/- some pocket change. What however, if they waited until November when the market might have been at 8,500 and their account worth $300,000?
They're screwed.
The RMD is based on PRIOR December 31 value and the fact that the person waits and the market tanked on them doesn't matter to the IRS. So, they'd still have to take out $21,834 on an account worth $300,000 or 7.28% of the current account value.
This is one area where people can really get whammied.
Seems our government has decided it would be good politics to allow an exemption for this calander year and not require people to take out their RMD's. Some people can afford to not take it out and this might be a good thing for them. Other people can't afford to not have their money and though this might be a nice gesture, it is an empty lifeboat for these people.
I've attached a pdf that I found doing a simple google, I've got no association with the people that created it, I just wanted to share something that went into more detail.
So, if you, your parents, friends who might have some means and not HAVE to take money out of their IRA's this year, then make sure they find out that they might not have to.
I have nothing to do with the attachment and am not affiliated with them in any way. I simply did a google search to find some more details on the subject and picked that one out.
This concludes today's public service announcement...
