When retirement plans suffered big losses in 2008, Congress enacted a one year moratorium, for 2009, on the requirement that retirees over the age of 70 1/2 withdraw a certain amount from their individual retirement and 401(k) accounts. Since the distributions are subject to taxation, retirees could avoid the taxman in 2009 by not having to take the usual minimum distributions, not to mention avoiding the investment mistake of “buying high and selling low.”
2009 is history, and the required minimum distributions are back, even if most retirees’ account balances have not fully recovered to prerecession levels. Retirees with affected retirement plans need to make sure that the necessary distributions resume in 2010, lest they incur a hefty penalty from the IRS for failing to do so.
Some advisors have counseled retirees to try to wait until the end of 2010 to take the minimum distributions—for two reasons. First, the longer that the money stays in the account before withdrawal, the more it can grow. Second, Congress conceivably could act to extend the moratorium on mandatory distributions for another year.