timing of withdrawals
Prior to the legislation waiving a 2009 withdrawal, I had planned to take my first RMD in December 2008, rather than waiting until April 1, 2009 (turned 701/2 in 08). My reason was to avoid having to make two RMD’s in 2009 and possibly increasing my tax bracket rate. Now I am wondering if I should make my first RMD on April 1, 2009 that I presume would mean that I would not have to make any additional RMD in 2009 and then would presumably commence one annual RMD in 2010 and beyond. Do I understand the regulations correctly and would this approach be to my advantage? I understand that tax rates could be higher in 2009 and beyond.
Permalink Submitted by Alan Spross on Sat, 2008-12-27 21:13
Yes, you understand the mechanics of the RMD relief legislation correctly. The RMD for the 2009 year is waived.
You have several options, and based on your other income, deductions and marginal tax rate, one or the other may work best:
1) Take the 2008 RMD this year if your marginal rate is expected to be lower this year.
2) You can take half your 2008 RMD prior to year end and the other half in late March, 2009. That would split the RMD income equally in both years.
3) Take the entire 2008 RMD in 2009. This works if your income will be lower in 2009. If you have interest income, the rates will certainly be much lower in 2009 unless you locked in long term CDs last year.
For other than the top brackets, there is not likely to be a federal rate increase in 2009, but the same cannot be said for certain states who may be forced to raise income, property or sales taxes in 2009.
Since your first RMD is the smallest at less than 4% (although on 12/07 account balance), it may not even matter that much which option you select.
If you want to convert anything to a Roth next week OR in 2009, you must take the full 2008 RMD out first.