Robert Goodfriend

The Worker, Retiree and Employer Recovery Act of 2008 (the Act), which was signed into law on December 23, 2008, allowed taxpayers to suspend their 2009 required minimum distributions (RMD) from qualified plans, 403(b) tax-sheltered annuities, 457(b) governmental plans, and IRAs. On September 24, 2009, the IRS issued Notice 2009-82 which provided additional guidance with respect to RMD made in 2009 (or due to be made by April 1, 2010, for initial RMD).

Many taxpayers were unaware of the RMD waiver for 2009. Many financial institutions issued RMD to their clients in early 2009 before their systems were updated to reflect the waiver. Because qualified plan and IRA distributions generally are fully taxable, the 2009 RMD taken, even though not required, could result in a higher tax liability for the individual.

Ordinarily, taxpayers must roll over the distribution within 60 days following receipt to avoid taxation. Notice 2009-82 allows taxpayers the opportunity to roll over any 2009 RMD into a qualified plan or IRA by the later of (1) 60 days following receipt of the distribution or (2) November 30, 2009. One caution is that only one distribution per 12-month period from any single IRA is eligible for this rollover relief. It should also be noted that this relief is available only to annual RMD (generally for taxpayers over age 70 ½). The relief provisions of Notice 2009-82 do not apply to discretionary distributions or to distributions in excess of the calculated 2009 RMD amount.

A qualified plan must include a plan amendment to allow for waivers of 2009 RMD and/or rollovers of 2009 RMD as permitted by the Act. Notice 2009-82 contains sample amendments that can be used for this purpose. The plan amendment must be made on or before the last day of the first plan year beginning on or after January 1, 2011 (January 1, 2012, for governmental plans). For example, a calendar-year, non-governmental qualified plan must make the amendment on or before December 31, 2011. A plan will not fail to be treated as operating in accordance with the terms of the plan document solely because the plan waives 2009 RMD and/or allows 2009 RMD rollovers before the plan amendment is in place. Under current guidance, there is no plan amendment necessary for IRAs.

This relief is most beneficial for individuals who received their RMD in a lump sum earlier in 2009, and cash flow from other sources allows them to roll over the amount into the qualified plan or IRA. In this situation, consideration should be given to using the provisions of Notice 2009-82 to complete the rollover by November 30, 2009, or 60 days after distribution, if later. This rollover would eliminate the potential income tax effects of the distribution.

For more information on this topic, please contact your BKD advisor.