RMDs Still Required in 2008

In a letter to a top Congressional lawmaker this week, the Treasury Department said it will not suspend the required minimum distribution (RMD) requirement for 2008.

Multiple members of Congress had called on the Treasury to suspend the RMD tax-penalty for 2008 (see “Two RMD Delay Bills Filed,” “Collins Asks Paulson to Cancel 2008 RMD Penalty,” “Lawmakers Call for End of RMD Penalty“).

Although the Treasury had previously announced they were considering offering relief for this year, in light of the passage of the Worker, Retiree, and Employer Recovery Act of 2008 (H.R. 7327), the letter, from Assistant Secretary for Legislative Affairs Kevin Fromer, said the Treasury would not implement such suspension.

Fromer wrote: “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.’

The Impact

The bill approved by Congress earlier this month suspends RMDs for calendar year 2009 and is expected to be signed by the President (see “White House Confirms Bush to Sign RMD Relief). Several in Congress had thought that the Treasury Department would address 2008 distributions through regulation, rather than legislation.

Therefore, retirees older than 70 1/2 must take their required minimum distribution from any defined contribution plans (IRAs, 401(k)s, and 403(b)s) by Dec. 31 of 2008 or pay a tax penalty of 50% of that minimum plus income tax. The one exception to the December 31 deadline – for those who reached age 70 세 this year. Because this will be their first RMD, they can delay it to as late as April 1, 2009.