Washington, D.C. (Dec. 24, 2008)

The Internal Revenue Service and the Treasury Department have decided against changing a rule that requires retirees to withdraw a minimum distribution from their retirement savings accounts by the end of 2008.

Congress decided earlier this month to eliminate the requirement for 2009 after hearing complaints from many retirees that the minimum distribution requirement forced seniors into withdrawing money from their severely depleted individual retirement accounts and 401(k) accounts (see Congress Kills Minimum Distributions for 2009). Under the rules, retirees over the age of 70-1/2 are required to take a minimum distribution by Dec. 31 every year or pay half of the minimum distribution in taxes.

“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,” wrote Kevin Fromer, the Treasury’s assistant secretary for legislative affairs, in a letter to Congress. “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 waiver of the requirement to take any distributions for 2009.”

By WebCPA staff

Washington, D.C. (Dec. 29, 2008)

A group of 61 members of Congress has written to President Bush asking him to suspend rules that require senior citizens to withdraw money from their severely depleted retirement accounts by the end of the year.

Earlier this month, Congress passed a bill that eliminated the requirement for minimum distributions from IRAs, 401(k) and 403(b) accounts for 2009, but left it up to the Treasury Department to decide what to do about 2008 (see Congress Kills Minimum Distributions for 2009). President Bush signed the bill on Tuesday.

However, Treasury assistant secretary for legislative affairs Kevin Fromer wrote to Congress saying the Treasury had decided not to suspend the minimum withdrawals for 2008, claiming such a change would be “complicated and confusing for individuals and plan sponsors” (see Minimum IRA Distributions Still Required for 2008). Under the rules, retirees over the age of 70-1/2 are required to take a minimum distribution by Dec. 31 every year or pay half of the minimum distribution in the form of an excise tax plus the income tax on the distribution.

Rep. Spencer Bachus, R-Ala., and Rodney Frelinghuysen, R-N.J., along with 59 other lawmakers, wrote to Bush asking him to urge Treasury Secretary Henry Paulson to nonetheless waive the rule.

“We respectfully request that you use your executive authority to direct the Secretary of the Treasury to use the flexibility provided by statute to immediately waive the same rules for the 2008 tax year,” they wrote on Dec. 19. “Furthermore, we ask that you use the same authority to allow retirees who have already withdrawn in 2008 to make recontributions to their accounts. By doing this, you will allow retirees to protect some of their savings during these rough economic times.”

The lawmakers believe that the distribution requirements should be suspended for this year as well as next. “Federal tax regulations should not force seniors to take money from their retirement accounts at a time when the value of their investments has plummeted,” said Bachus (pictured) in a statement.

Bachus and Frelinghuysen co-sponsored a bill in November, the Temporary IRA Distribution Act, that would have waived the minimum distribution requirement for both 2008 and 2009. The provision affecting minimum distributions for 2009 only was included in the bill that passed this month, the Worker, Retiree and Employer Recovery Act of 2008. That bill also allows corporations to delay fully funding their pension plans. The American Institute of CPAs and 350 other organizations wrote to leaders of the House Ways and Means Committee in November asking for relief from the requirement for businesses.

By WebCPA staff

Washington, D.C. (Dec. 15, 2008)

On Thursday, Congress passed a waiver of the minimum distribution rule for 2009, but not for 2008, for employer-provided qualified retirement plans and individual retirement accounts and annuities in H.R. 7327, the Worker, Retiree, and Employer Recovery Act of 2008. President Bush is expected to quickly sign it.

The Treasury Department is studying whether to provide relief with regard to 2008 minimum distributions.

The 2009 minimum distribution relief applies to lifetime distributions to employees and IRA owners and after-death distributions to beneficiaries, and is effective for calendar years beginning after Dec. 31, 2008. However, it doesn’t apply to any required minimum distribution for 2008 permitted to be made in 2009 by reason of an individual’s required beginning date being April 1, 2009.

The bill also makes a number or technical corrections to the Pension Protection Act of 2006. Among the most significant are:

– A technical correction provision providing that a rollover from a Roth designated account in a tax-qualified retirement plan or tax-sheltered annuity to a Roth IRA isn’t subject to the gross income inclusion and adjusted gross income conditions.

– Effective for plan years beginning after Dec. 31, 2009, rollovers by nonspouse beneficiaries are generally subject to the same rules as other eligible rollovers.

– The transition rule for minimum funding rules for single-employer defined-benefit plans is extended to plans beginning after 2008, even if, in each preceding plan year after 2007, the plan’s shortfall amortization base was not zero. Other changes in response to the economic crisis include temporary modification of the application of limitation on benefit accruals, a temporary delay of designation of multi-employer plans in endangered or critical status, and a temporary extension of the funding improvement and rehabilitation periods for multi-employer pension plans in critical and endangered status for 2008 or 2009.

– The civil penalty for failure to timely file a partnership return is increased to $89 from $85 per partner for each month (or fraction of a month) that the failure continues, up to a maximum of 12 months for returns required to be filed after Dec. 31, 2008. A $4 increase to $89 per return was also made for the penalty for failure to file S corporation returns

The Technical Explanation of H.R. 7327 prepared by the staff of the Joint Committee on Taxation can be found here.

By WebCPA Staff