No mandatory withdrawals for 2009

Highway sign with the words Retirement-Next Exit

If you're turning 70 1/2 in 2008 or you're already there, you won't be required to take money out of your IRA, 401(k) or 403(k) retirement accounts this year.

The government has suspended all required minimum distributions (or RMDs) to allow these retirement accounts to recover some of the steep losses sustained in 2008 -- and to ease the account holder's 2009 income tax bill.

The new provision also applies to people of any age who inherited tax-deferred retirement accounts.

Generally, those beneficiaries also are required to take a taxable distribution each year, based on a life-expectancy formula. The RMD must be taken even if the new owner is still of working age and would prefer to let the account grow undisturbed.

This suspension of mandatory withdrawals is only in effect for 2009, although it could be extended if the stock markets do not turn around by the end of the year.

In the past, once you hit 70 1/2, you were required to withdraw money from your IRA, 401(k) or 403(k) no later than April 1 of the year following the year you turned 70 1/2 -- even if you didn't want to. This is called the "required beginning date."

People with pensions and other sources of income still had to start withdrawing funds from their accounts. This year, they don't.

There is one potentially confusing twist, however: If you turned 70 1/2 in 2008, you still must take the distribution for that year. Some people may have deferred their 2008 withdrawal, as permitted by law, until April 2009. That distribution still must be taken to satisfy the 2008 requirement.

Of course, anyone who still wishes to withdraw money from their retirement accounts may do so penalty-free, provided they meet the minimum age requirement of 59 1/2.

Learn more in our 9 smart moves for managing your retirement plans in tough times.

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