Compliance January 9, 2009

IRS Updates 2009 Reporting Requirements for RMDs

The Internal Revenue Service (IRS) has modified reporting requirements applicable to required minimum distributions (RMDs) from individual retirement accounts (IRAs) to reflect the waiver of the RMD rules for 2009.
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According to Notice 2009-09, issuers of the 2008 Form 5498, IRA Contribution Information, should not put a check in Box 11. However, in recognition of the short amount of time to make programming changes, if a financial institution issues a 2008 Form 5498 with a check in Box 11, the IRS will not consider such form issued incorrectly provided the IRA owner is notified no later than March 31 that no RMD is required for 2009.

In addition, if a financial institution sends a separate RMD statement to an IRA owner, either initially or in response to the owner’s request for the financial institution to calculate the RMD for 2009, the financial institution must show the RMD for 2009 as zero. The IRS said the financial institution may also send the IRA owner a statement showing the RMD that would have been required but for the waiver of RMDs for 2009, along with an explanation of the waiver.

On December 18, President George W. Bush signed into law a broad pension relief bill that includes a one-year moratorium on RMD rules (see “Bush Signs RMD, Pension Relief into Law’). Since then a 61-member U.S. House coalition has called on President Bush to order the U.S. Treasury Department to give investors the same relief for 2008 (see “House Members Demand 2008 RMD Relief from Bush’).

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However, in its notice, the IRS encouraged all financial institutions to inform IRA owners who delayed taking their 2008 RMD until April 1, 2009, that they are still required to take that distribution.

Notice 2009-09 is available here.

Data & Research January 9, 2009

Treasury Suggests Boosting Social Security Retirement Ages

The latest U.S. Treasury Department treatise on Social Security reform suggests increasing both the early and normal retirement ages would help encourage more Americans to stay in the workforce.
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The research paper, “Social Security Reform: Work Incentives,” asserts that many Americans mistakenly view the early retirement age of 62 and the normal retirement date as being officially sanctioned government timelines and make retirement decisions based on that understanding.

Generally, the Treasury document says, the government needs to do a better job making clear the precise relationship between the length of one’s work life and their benefits.

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Particularly with those considering the early retirement step, the government research paper suggests that many taxpayers underestimate the extent to which their ultimate Social Security payment level would go up as they work longer.

“This is true despite the fact that the Social Security net tax structure gives no true economic incentive for workers with reasonably prudent nest eggs to retire at that specific age,” officials say in the document. “Increasing the early retirement age would not affect the retirement incentives of these workers, but would likely encourage additional work effort through the suggestion effect.”

As with the early retirement age many taxpayers interpret the normal retirement timeline as being suggested by the government. “Such people’s retirement decisions would be more responsive to an increase in the normal retirement age than to the equivalent proportional benefit cut,” researchers say.

The paper is available here.

 

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