RMD and market losses
I realize the 2008 RMD is calculated based on ending qualified balances as of 12/31/2007. However, if the client has lost a large amount of money in the market can this RMD be re-calculated to take that into account.
Any clarification would be appreciated.
Thanks
Thomas
Permalink Submitted by Al Fry on Fri, 2008-11-21 19:17
No law to allow that currently. Here is another angle, however: With the market value being down the RMD could be made in-kind. If it is a capital growth asset not throwing off taxable income, and was not needed for income later, it could be held until death, and get a basis step-up at that time. On the one hand we all talk about the value of income tax deferral and the stretch, however we also know tax-qualified retirement vehicles are not the best assets to die with.
Permalink Submitted by charles lore on Sat, 2008-11-22 04:39
Or you can sell it in ira, distribute cash to outside account and re buy it to establish the basis which would be same as if you did an in kind distribution. Same thing but a few more gymnastics.
Permalink Submitted by Janine Janine on Sat, 2008-11-22 19:12
[quote= On the one hand we all talk about the value of income tax deferral and the stretch, however we also know tax-qualified retirement vehicles are not the best assets to die with.[/quote]
Please expand on the latter part of your statement.
Thank you.
Permalink Submitted by Janine Janine on Sat, 2008-11-22 19:14
[quote=”[email protected]“]Or you can sell it in ira, distribute cash to outside account and re buy it to establish the basis which would be same as if you did an in kind distribution. Same thing but a few more gymnastics.[/quote]
What would be the advantage of this approach?
Thank you.
Permalink Submitted by charles lore on Sat, 2008-11-22 21:38
Didn’t mean to imply there was an advantage but one may be the fact that you wont need a cash adjustment plug as you will in an in kind and thus can do just one clean distribution
Another may be in that cash is king. If the stock goes down you can just buy it cheaper w/o having ridden it down. Of coarse it can go up but currently most people would be more comfortable with cash than worrying about an opportunity cost .
Permalink Submitted by mk foss on Sat, 2008-11-22 23:46
This is to clarify Al Fry’s response that mentioned that retirement plan assets are not the best things to die with. What he meant is that these assets are subject to income tax and possible estate tax.
Even if someone’s estate is not large enough to pay the estate tax the income tax can be considerable especially if the beneficiary is in a higher tax bracket than the account owner. Since people are living longer it’s becoming more and more likely that the beneficiary’s bracket may be higher.
Permalink Submitted by JAMES MAGNO on Tue, 2008-11-25 17:46
It appears that Congress is talking about suspending the RMD requirements for year 2009 – I don’t see any talk about suspending the RMD requirements for 2008 – this in response to the drop in the stock market. Any thoughts or updates are greatly appreciated.
Jim
Permalink Submitted by mk foss on Tue, 2008-11-25 17:52
I heard someone speculate that 2009 RMD legislation may allow a portion of the 2008 RMD to be returned to the fund. There is so much gossip about potential tax changes that I wouldn’t count on any validity to that rumor.
Permalink Submitted by Janine Janine on Tue, 2008-11-25 21:50
Since the year-end balance as of 12/31/08 will be so much lower because of FMV loss, I do not understand how suspending the RMD for 2009 and not doing something about the 2008 RMD will really help the economy or retirees.
Permalink Submitted by Al Fry on Tue, 2008-11-25 22:27
Perhaps there will be a recovery in the next 5 weeks! One stock I have in IRA doubled since Thursday.
Permalink Submitted by Alan Spross on Tue, 2008-11-25 23:04
In any event, we are dealing with lame ducks, band aid solutions, and bailout strategies that change by the day.
To contrast the band aid solutions from the important stuff, at least the band aids have a predictable affect, while the big fixes are unfortuneately nothing more than a shots in the dark hoping to do some good.
For those who hope for some relief for 2008, about all you can do is wait until the last week in December to see what happens. But don’t wait until the last 3 days because whatever you ask for might miss the deadline at that point.
Permalink Submitted by mk foss on Wed, 2008-11-26 01:31
If someone waits until the last minute and the custodians cannot process the RMD in time, I predict IRS will receive many requests for waivers of the 50% penalty for 2008.