On December 23, 2008 the “Worker, Retiree, and Employer Recovery Act of 2008” was signed into law by President Bush. One key provision of the Act temporarily suspends the requirement for taxpayers age 70 ½ and older (and their beneficiaries) to make annual minimum required distributions (MRDs) from their retirement plan accounts.
The Internal Revenue Code normally requires individuals over age 70 ½ with retirement accounts to make MRDs annually based on the size of the account balance at the beginning of the year and the age of the account holder (or the account beneficiaries in some cases). The new law suspends the MRD requirement for 2009. The law attempts to avoid the significant depletion of account assets that may result if MRDs were required following significant market losses in 2008 and allows the funds to be kept in the account and possibly recover some losses. This waiver is available to all defined contribution plans, including 401(k), 403(b), 457(b) and Individual Retirement Accounts (IRAs) regardless of the total account balance. The new law does not affect 2008 MRD requirements regardless of whether the distribution is made in 2009 for tax year 2008.
The new law also makes numerous technical corrections to the Pension Protection Act of 2006. The most significant is that, for tax years beginning after 2009, plan sponsors must offer non-spouse beneficiaries a rollover option. This gives much-needed flexibility to those who inherit retirement plan accounts from someone other than their spouse.