Important New IRA Rules
For more information on IRAs, be sure to visit The IRA Guide and The Roth IRA Guide.
One of the most notable features of your IRA account is the requirement to begin withdrawing assets once you become 70 ½ years of age. On December 23, 2008, President Bush signed into law the Worker, Retiree and Employer Recovery Act. This Act includes a provision that provides tax relief to seniors by suspending the Required Minimum Distribution (RMD) for IRA and other retirement accounts in 2009.
If you are subject to the RMD, this may be good news for you. Normally, you would be forced to withdraw money from your retirement account or face a 50% penalty on the amount of the RMD you were required to withdraw. However, in 2009, if you do not need to draw down on this money, you can elect to forego this year’s distribution and realize the benefits of tax-deferred growth until RMD is reinstated in 2010. Please note that those who turned age 70 ½ in 2008 and elected to defer their first distribution until April 1, 2009, must still take that 2008 distribution prior to April 1, 2009.
Additionally, there are changes being made next year for those who may not want to take their annual IRA distributions. In 2010, an IRA holder can choose to convert his or her Traditional IRA to a Roth IRA. Once it is a Roth IRA, no mandatory distributions exist and any growth from that point forward grows tax-free. You could pay taxes on the entire amount in 2011, or, taxes for the Roth conversion can be paid 50% in 2011 and 50% in 2012. So, if you are not in need of the annual income from your IRA, it may be more beneficial to consider converting your Traditional IRA into a Roth.
For more information on IRAs, be sure to visit The IRA Guide and The Roth IRA Guide.
