In December 2008, new laws were enacted that significantly changed the distribution rules for all 2009 required minimum distributions (RMDs).  The background of the required minimum distribution rules and the new law changes are discussed below:

Background
Defined contribution plan participants and IRA owners are generally required to begin taking required minimum distributions in the year in which they turn age 70½.  Although, the first required minimum distribution may be delayed until April 1st of the year following the year the retirement account holder turns 70½.  Each year after the first year, a participant is required to take an RMD by December 31.  For instance, if an IRA owner turned 70½ during 2007, they would be required to take their first RMD for 2007 by April 1, 2008 and their second RMD for 2008 by December 31, 2008.

RMD Rule Changes
On December 23, 2008, the Worker, Retiree, and Employer Recovery Act (WRERA) was signed into law giving defined contribution plan participants, IRA owners and beneficiaries who would have otherwise been required to take required minimum distributions in 2009 the option of waiving the required distribution for 2009.

The waiver allowed IRA account holders the option of keeping their 2009 RMD in their respective retirement accounts and allowing the money to continue to grow tax deferred or to try to recoup losses experienced by recent market conditions.  Participants in defined contribution plans were also given the same relief, as long as the underlying plan document allowed for the waiver. 

The waiver also applies to first time 2009 RMDs, which are normally required to be taken by April of 2010.  For example, if a participant turns 70½ in 2009, they would normally have to take their first RMD by April 1, 2010.  However, due to the changes, they may now elect not to take the RMD at all.

Additional Guidance
On September 24, 2009, the IRS issued additional guidance on the waiver, providing relief for IRA owners that have already taken their 2009 required minimum distribution.  The guidance gives individuals that have already received their 2009 RMD the ability to roll over the distribution, even if the normal 60-day window has expired. 

The roll over must be completed by the later of November 30, 2009 or 60 days after the date the 2009 required minimum distribution was taken.  However, the rule that no more than one distribution from an IRA will be eligible for rollover still applies.  For instance, if an individual received their 2009 RMD in a single payment from their IRA in January of 2009, they now have until November 30, 2009 to roll the funds back into their IRA.

Defined contribution plan participants are also able to roll over their 2009 required minimum distributions if they have already taken them.  The deadline is the same as the deadline for IRA owners:  the later of November 30, 2009 or 60 days after the date the RMD was taken.  It is even possible for a plan participant to roll their 2009 RMD back into the same plan, as long as the plan allows for such rollovers.  If the plan doesn’t allow these rollovers, the participant has the option of rolling the funds from the RMD they’ve already taken into an IRA.

Plan Sponsor Relief
The IRS also provided two sample amendments that may be adopted by defined contribution plan sponsors.  The amendments specify how a plan will handle 2009 RMD distributions in light of the new law and additional guidance.

The amendments must be adopted by the last day of the first plan year beginning on or after January 1, 2011 (December 31, 2011 for all calendar year plans), although the plan amendments must be followed in practice by the plan retroactively back to December 1, 2009.  The IRS has also provided transitional relief for defined contribution plan sponsors who did not operate their plan in accordance with the new amendment between January 1, 2009 and November 30, 2009.

The Employee Benefits team at Schechter Dokken Kanter is well versed in the changes and adjustments of the RMD rules. Each plan has specific issues and should be addressed individually.  Consult your SDK representative with specific questions regarding the implications of RMDs to your plan.

Nicole Brown, CPA, 612.332.9372
Kelly Barlow, 612.332.9336