IRA Rules for 2009

There is some tax relief for IRA account holders over the age of 70.5 this year. The Worker, Retiree, and Employer Recovery Act, initiated in late 2008, suspended required minimum distributions (RMDs) from IRAs for 2009. This means that the government is not requiring those over the age of 70.5 to withdraw any money from their IRA, thus not forcing a taxable event on the IRA account holder. It also prevents unnecessarily liquidating equities at prices that may be currently low. The suspension only applies to the year 2009.

The temporary allowance of Qualified Charitable Distributions (QCD) from an IRA has been extended through 2009. This law permits IRA account holders over the age of 70.5 to distribute up to $100,000 a year from their IRAs directly to their chosen charity without paying tax on those distributions. For those who would not spend from the IRA otherwise, this essentially eliminates the tax burden of the RMD. Further, it is gets money out of the IRA tax-free, thereby reducing the IRA level and therefore reducing future RMDs and associated taxes.

Things to consider regarding the QCD in 2009, now that RMDs are not mandated:

• If you only want to make a Qualified Charitable Distribution for the sake of eliminating the current RMD tax burden, there is no need to do so in 2009. Donations may be made from other sources.

• If you take the standard deduction on your tax return (do not itemize), there is no tax benefit for charitable contributions. In this case, donating money from the IRA may be appealing to you simply as a means of getting money out of the IRA tax-free.

• If you intend to live off of your IRA investments throughout retirement, these strategies may not make sense for you. Always consult with your tax advisor to see how such scenarios might affect you personally.

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