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Receive a Distribution from Your Retirement Plan this Year?
Mary E. Dickinson, CPA
Principal, Tax Services; Principal, Accounting and Assurance Services
October 5, 2009
The virtual meltdown of the stock market in 2008 created a unique problem for many older taxpayers.
Generally, their IRAs―as well as their 401(k) and 403(b) plans and other employer-provided, defined contribution retirement plans―are subject to required minimum distribution (RMD) rules for federal income tax purposes. Under these rules, account owners must withdraw minimum amounts each year, beginning with a legally mandated date that is generally determined based on age. With limited exceptions, the required minimum distribution amount is taxable income for federal income tax purposes.
For those with retirement accounts invested in the stock market, selling depressed stocks and mutual funds to satisfy RMD requirements meant locking in substantial losses. To avoid that eventuality, Congress temporarily suspended the RMD rules for 2009. However, since the rule change was made in late December of 2008, there wasn't enough advance notice for many plan sponsors to change software and other procedures for 2009. In other cases, IRA owners simply weren't aware of the rule changes.
As a result, many retirement account owners received unnecessary distributions in 2009 that are, for the most part, fully taxable.
Fortunately, as John F. Kennedy once noted, "the only unchangeable certainty is that nothing is certain or unchangeable." In this case, the IRS has intervened to provide relief.
Tax Relief for Retirement Account Owners
If you received an RMD in 2009 from your IRA, 401(k), 403(b), or other employer-provided plan―and you didn't want or no longer want the distribution―you can roll it over to an eligible retirement plan and avoid recognizing the distribution as taxable income.
Usually a rollover must take place within 60 days of the distribution. However, in September, the IRS announced an extended rollover period through November of 2009. As a result, you can roll over your unwanted 2009 RMD, as well as certain additional payments, until the later of the following:
 60 days following receipt of the distribution, or
November 30, 2009
This extension provides a rare opportunity to retroactively reduce your 2009 federal income tax liability.
Significantly, the tax rules limit you to one rollover per year and that limitation has not been changed for 2009.
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