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January 30, 2009

Moratorium on Required Minimum Distributions for 2009

As a taxpayer subject to the required minimum distribution rules, you may be affected by a provision of The Worker, Retiree, and Employer Recovery Act of 2008 (2008 Worker Act). Under the 2008 Worker Act, no minimum distribution is required for calendar year 2009 from your individual retirement accounts (IRA) or employer-provided qualified retirement plans that are defined contribution plans.

Generally, individuals must start receiving periodic distributions from their IRA and retirement plans by April 1 of the year following the year they reach the age of 70 1/2. If a taxpayer fails to take the required minimum distribution, the IRS imposes a 50% penalty. The amount of the required minimum distribution is generally based on the fair market value of the account balance as of the last day of the previous year.

In view of the current economic circumstances, Congress understands that taxpayers would have to sell assets that have dropped significantly in value in order to take their distributions. Therefore, the 2008 Worker Act temporarily lifts all required minimum distribution rules. As a result, retirees will have the opportunity to recover their losses, assuming the market improves.

Under the 2008 Worker Act, taxpayers who turn 70 1/2 in 2009 are not required to make a distribution for 2009 and therefore no distribution is required by the required beginning date of April 1, 2010. However, their minimum distribution for 2010 is required to be made by December 31, 2010. Alternatively, taxpayers who turn 70 1/2 in 2008, and therefore have a required beginning date of April 1, 2009 are not affected by the 2008 Worker Act and must take a required minimum distribution by April 1, 2009.

If you have any questions regarding how this provision affects you, please call our office at your earliest convenience.

If you found this article of interest and would like to find out how LBO can help you acheive your tax, insurance, and financial planning goals, please give us a call at 631.864.5206, or simply fill out our information request form and an LBO representitive will contact you as soon as possible.