In 2009, many taxpayers age 70½ and over are allowed to skip a year of withdrawals from their retirement accounts without penalty! Generally, you must take minimum distributions from your retirement accounts after age 70½ to avoid paying penalties. This is known in tax jargon as a “required minimum distribution” or “RMD.” Under normal conditions, the RMD rules wouldn’t be as big a problem for most taxpayers because they simply require you to start earning income from the retirement funds you’ve accumulated over the years.
However, in light of the most recent turmoil in the financial markets, now is not a good time for most people to sell investments at depressed market prices to earn income from their retirement accounts and comply with investment rules. RMD. That’s why Congress and the President agreed to waive the RMD rules for one year, 2009, and allow many people age 70 1/2 and older to leave their money in their retirement accounts. If you meet the requirements of this new law and decide to leave your funds in your retirement accounts, you could achieve two huge benefits:
1. You could avoid depleting your investment accounts after they have lost value due to adverse market conditions
2. Your retirement accounts may be better prepared to participate in potential investment gains if financial markets recover in 2009.
Interestingly, since 1926, we have had 13 bear markets in total, 9 of which (including the current bear market) were combined with a recession. In the previous 8 bear market downturns, the average decline in the S&P 500 was -39%. The 1-year average return on the S&P 500 after the bottom of the bear market was +46%. In other words, if history is any guide, the markets could rally quite nicely once this bear market is over. If you keep your funds invested in 2009 instead of receiving minimum distributions, this could work out well for you.
Of course, it’s important to note that I’m providing this information to you as your mortgage planner, so you’ll get some interesting ideas that may benefit you. I am not a legal, tax or investment adviser, and this information does not constitute legal, tax or investment advice. I definitely recommend that you consult legal, tax and duly licensed advisors for specific advice related to your individual situation.
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Special tax exemption for people over 70 and a half years of age
Whether you decide to take minimum distributions from your retirement accounts in 2009 or not, another idea to consider is to potentially take advantage of the historically low mortgage rates that are currently available. Mortgage proceeds can be used for any purpose, including gifting or lending funds to family members and/or providing additional funds for your own situation. It is always advisable to consult with a Certified Mortgage Planning SpecialistTM (CMPS(R)) when navigating today’s turbulent real estate and mortgage markets. As a CMPS(R) professional, I am committed, qualified and equipped to help you evaluate your mortgage options.
IRS Circular 230 Disclosure: To ensure compliance with the requirements imposed by the Internal Revenue Service, we inform you that any US federal tax advice is given to any person for the purpose of (i) avoiding tax penalties or (ii) promote, market or recommend to another person any transaction or matter addressed in this communication.
