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Year of the Ox and the RMD Holiday

It's not often that Uncle Sam gives us a gift. Sure, he keeps us safe, keeps our water clean and helps build our highways, but those aren't really gifts. We pay for those things out of our paychecks.

Yup; Uncle Sam is great guy but not overly generous to us working folks.

Well, 2009 is the year that old Uncle Sam truly made a gift. For 2009, Uncle Sam has declared a new holiday, at least a temporary one. The federal government has declared a Required Minimum Distribution Holiday for 2009.

IRAs, 401(k)s, and many other types of retirement plans were created to help us save for retirement in a tax efficient manner. These plans allow us to put pre-tax dollars into them and defer taxation on the income and growth until we start drawing on the account.

Although our friends in Washington help us save for retirement, their help has its limits. At some point, they want you to start drawing on your retirement savings. At 70 1/2, they tell you to stop saving and start spending. When you reach that magic age of 70 1/2, a set of rules kick in that require you to start drawing a minimum amount out of most retirement accounts. The minimum amount that must be taken out of most retirement accounts each year is known as the Required Minimum Distribution, or RMD.

Of course an RMD makes sense. If there wasn't a requirement to begin withdrawing funds, some individuals might start using retirement accounts as an estate planning and wealth shifting device rather than as retirement accounts.

However, the smart folks that came up with these retirement plans probably never anticipated a year like 2008. I don't know about you, but my retirement savings took a bit of a hit last year. The good news is I still have a few years to go before I can consider retiring. Those of you subject to RMD probably don't have as much time as I do to make up the losses. Forcing you to sell in this market to fund an RMD is like a kick when you're down.

In an effort to help you avoid that last kick, our Washington friends have decided they aren't going to make you sell assets when the market is "adjusting". Instead, they are giving you a RMD holiday. In 2009, the RMD requirement has been suspended. If you don't draw the minimum out of your retirement plans in 2009, you will not be penalized.

The RMD holiday doesn't mean that you are restricted from taking money out of your retirement accounts in 2009. If you need the money, you can still get at it. However, if you can squeeze by without taking funds, you can leave them in your account and, hopefully, allow it to grow and make up some of the losses you experienced in 2008 -- assuming you have anything left, of course.

Now I know some of you probably won't be able to get by without drawing on your IRA or 401(k). However, if you can afford to get by without taking money, the Great RMD Holiday of 2009 is just what you need. It's a gift of time from Uncle Sam to you. And you don't even have to send a thank you card. Your not pillaging Washington, D.C. is thanks enough.

Opinions expressed solely are those of the writer. Christopher W. Yugo is a member of the Indiana Bar and a vice president and senior trust Officer for First National Bank's Trust Department. Address questions to Yugo in care of The Times, 601 W. 45th Ave., Munster, IN, 46321. Yugo�s information is meant to be general in nature. Specific legal, tax, or insurance questions should be referred to your attorney, accountant or estate-planning specialist.