Tax Edge

Retirement plan administrators, plan participants and retirees have received guidance from the IRS regarding recent legislation--the Worker, Retiree, and Employer Recovery Act of 2008--that waives for 2009 the required minimum distributions from certain retirement plans.

Generally, a 'required minimum distribution' is the lowest dollar amount that must be withdrawn annually from an IRA or an employer's retirement plan beginning in the year the retiree/account holder reaches age 70-1/2. The 2008 law waives required minimum distributions for 2009 for IRAs and defined contribution plans (such as 401(k) plans) and allows certain amounts distributed as 2009 required minimum distributions to be rolled over by the recipients into an IRA or another retirement plan.

IRS Notice 2009-82, issued on September 24, provides relief for people who have already received a 2009 required minimum distribution this year, even though they didn't want the distribution. Individuals generally have until the later of Nov. 30, 2009, or 60 days after the date the distribution was received, to roll over the distribution without any tax or penalty consequences.

The notice also provides guidance for retirement plan sponsors. It contains two sample plan amendments that plan sponsors may adopt or use to amend their plans to either stop or continue 2009 required minimum distributions. Both sample amendments provide that participants and beneficiaries can choose to receive or not to receive 2009 required minimum distributions. Also, both sample amendments allow the employer to offer direct rollover options of certain 2009 required minimum distributions.

Plan sponsors may need to tailor the sample amendment to their plan's particular terms and administration procedures. To be effective, the amendment must be adopted no later than the last day of the first plan year beginning on or after Jan. 1, 2011 (Jan. 1, 2012 for governmental plans).

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Posted October 3, 2009.