In a notice, the IRS has provided some guidance regarding the waiver of required minimum distributions (RMDs) for 2009. In addition, the notice provides some relief for RMDs in 2009 -- both for individuals subject to RMD and for plan operators. In general, individuals who received a RMD for 2009 are given until November 30, 2009 to roll over the RMD to another plan or IRA, if that is later than the normal 60 day rollover period.
In general, distributions must start from qualified plans and individual retirement plans at age 70½ (or at retirement, if later, for qualified plans). No distribution is required from a Roth IRA until after the death of the IRA owner. In general, distributions are made over the life expectancy of the plan participant or IRA owner, or the life expectancies of the participant or owner and a designated beneficiary. If the plan participant or IRA owner dies before his or her required beginning date and does not have a designated beneficiary, the account balance must be distributed by the end of the calendar year that contains the fifth anniversary of the date of death. Failure to make a required distribution results in a 50 percentpenalty to the extent the required distribution is not made.
The Worker, Retiree, and Employer Recovery Act of 2008 (WRERA 2008) provided for a waiver of required minimum distributions for 2009. Also, the five-year period described above is determined without regard to 2009.
For those who took required minimum distributions for 2009, the notice offers some relief. In general, a rollover between various retirement plans and individual retirement accounts is treated as a nontaxable event. (A rollover to a Roth IRA is generally taxable.) Ordinarily, a person receiving a distribution from a qualified plan or an IRA can generally complete a rollover by transferring the distribution to a qualified plan or an IRA within 60 days of the distribution. There are a few restrictions on rollovers between certain plans or IRAs. With regard to payments equal to the 2009 RMD or that are part of a series of substantially equal periodic payment (that includes 2009 RMDs), a rollover that otherwise qualifies can be completed by November 30, 2009, even if that is later than the 60-day period.
In addition, the notice makes clear that if life expectancy distributions in the year after death must ordinarily be started by December 31, 2009, distributions are not required to start until December 31, 2010. Also, if a spouse is the designated beneficiary of a spouse dying in 2008, the spouse can elect to treat the retirement account as his or her own until the end of 2010 (rather than 2009). Furthermore, the non-spouse designated beneficiary of an employee decedent dying in 2008 to which the five-year rule applies has until the end of 2010 (instead of 2009) to complete a direct rollover in order to obtain a life expectancy payout.
One exception to the early distributions penalty for distributions before age 59½ is for substantially equal periodic payments. One of the substantially equal periodic payments methods is to make payments using the RMD method. The exception for RMDs in 2009 does not apply for purposes of the early distributions penalty. Failure to make the 2009 RMD would be treated as modification of the substantially equal periodic payments, generally resulting in recapture of the early distribution penalty tax that otherwise would have been payable, plus interest.
The notice also provides sample amendments for a qualified plan regarding 2009 RMDs. One amendment provides a default to continue 2009 RMDs; the other amendment provides a default to discontinue the 2009 RMDs. The amendments (or as modified as needed) must be adopted no later than the last day of the first plan year starting after 2010 (2011 for governmental plans). IRAs do not have to be amended. Recognizing that plans did not have much time to deal with the changes for 2009, plans are given considerable flexibility in operation to deal with 2009 RMDs through November 30, 2009.
Notice 2009-82, 2009-41 IRB 491.
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