Legislation To Save Seniors Money Passes Congress

The House and the Senate have both passed H.R. 7327: The Worker, Retiree, and Employer Recovery Act of 2008. The legislation is not a done deal because it must, of course, still be signed by the President for it to become law.

Okay, so why do you care?

For years there’s been a rule which says that once you reach age 70.5 you have to start taking minimum amounts from retirement accounts. If you do not make the withdrawals then you can be taxed on the money you didn’t take out.

What H.R. 7327 says, in essence, is that the minimum withdrawal requirement is suspended — but only in 2009. The rule remains in effect for 2008.

The rule is important because seniors may not want to take money from retirement accounts at this time because to get the money they may have to sell stocks and bonds — securities which at the moment may not be selling at premium values. The hope is that the market will come back in 2010 and then it will (hopefully, again) make more sense to sell stock or bonds to meet the minimum withdrawal requirement.

Another advantage of the suspension is that smaller withdrawals for certain accounts also mean smaller income tax costs.

For specifics, please see a tax professional.

The actual language from the legislation reads as below.

SEC. 201. TEMPORARY WAIVER OF REQUIRED MINIMUM DISTRIBUTION RULES FOR CERTAIN RETIREMENT PLANS AND ACCOUNTS.

(a) In General- Section 401(a)(9) of the Internal Revenue Code of 1986 (relating to required distributions) is amended by adding at the end the following new subparagraph:

(H) TEMPORARY WAIVER OF MINIMUM REQUIRED DISTRIBUTION-

(i) IN GENERAL- The requirements of this paragraph shall not apply for calendar year 2009 to –

(I) a defined contribution plan which is described in this subsection or in section 403(a) or 403(b),

(II) a defined contribution plan which is an eligible deferred compensation plan described in section 457(b) but only if such plan is maintained by an employer described in section 457(e)(1)(A), or

(III) an individual retirement plan.

(ii) SPECIAL RULES REGARDING WAIVER PERIOD- For purposes of this paragraph –

(I) the required beginning date with respect to any individual shall be determined without regard to this subparagraph for purposes of applying this paragraph for calendar years after 2009, and

(II) if clause (ii) of subparagraph (B) applies, the 5-year period described in such clause shall be determined without regard to calendar year 2009.’.

(b) Eligible Rollover Distributions- Section 402(c)(4) of the Internal Revenue Code of 1986 (defining eligible rollover distribution) is amended by adding at the end the following new flush sentence:

If all or any portion of a distribution during 2009 is treated as an eligible rollover distribution but would not be so treated if the minimum distribution requirements under section 401(a)(9) had applied during 2009, such distribution shall not be treated as an eligible rollover distribution for purposes of section 401(a)(31) or 3405(c) or subsection (f) of this section.’.

(c) Effective Dates –

(1) IN GENERAL — The amendments made by this section shall apply for calendar years beginning after December 31, 2008.

(2) PROVISIONS RELATING TO PLAN OR CONTRACT AMENDMENTS-

(A) IN GENERAL — If this paragraph applies to any pension plan or contract amendment, such pension plan or contract shall not fail to be treated as being operated in accordance with the terms of the plan during the period described in subparagraph (B)(ii) solely because the plan operates in accordance with this section.

(B) AMENDMENTS TO WHICH PARAGRAPH APPLIES-

(i) IN GENERAL– This paragraph shall apply to any amendment to any pension plan or annuity contract which –

(I) is made pursuant to the amendments made by this section, and

(II) is made on or before the last day of the first plan year beginning on or after January 1, 2011.

In the case of a governmental plan, subclause (II) shall be applied by substituting `2012′ for `2011′.

(ii) CONDITIONS — This paragraph shall not apply to any amendment unless during the period beginning on the effective date of the amendment and ending on December 31, 2009, the plan or contract is operated as if such plan or contract amendment were in effect.

This entry was posted on Monday, December 15th, 2008 at 4:00 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.