72K withdrawals – can we recharacterize for year 2009?
I was wondering if the IRS has reviewed recharacterizing (lowering/changing) withdrawals for 72Ts for the year 2009?
I know that RMD’s have been suspended for year 2009, just wondering if there has been any discussion about changing 72T withdrawals for just year 2009?
There is someone that started 72T withdrawals a year ago, and their withdrawals are really being impacted by the low market – it is draining the IRA account much sooner/having to sell more shares.
Permalink Submitted by Alan Spross on Mon, 2009-02-09 21:12
I have not heard of any formal discussions on this subject, although the American Benefits Council seems to think that the waiver actually applies to 72t plans. See p 4 of the att’d:
http://www.americanbenefitscouncil.org/documents/mrd_requestforguidance_…
They seem to be alone in interpreting the WRERA as providing a waiver for 72t plans, which do not originate under Section 401a(9) of the code.
Relief may not be needed in part due to the one time switch to the RMD method. If a 72t participant using one of the fixed dollar methods changes to the RMD method on 1/1/09, the distribution will be sharply reduced, perhaps even too much. RMD method starts about 40% below the fixed dollar methods, and with a depressed 12/31/08 account balance, the distribution may be expected to drop nearly 2/3 for account that have been in equities. If the person can live with this scenario until the end of the plan, doing a recalc every January may be the solution. It should still be possible to make the change for 2009, even if two monthly payments have already been made. The remaining payments would just be adjusted much lower to equal the correct annual total amount.
Finally, even under the current plan, distributions can still be made in kind do not have to be made in cash. The shares of depressed investments can just be transferred to a taxable account and not sold. Only the amount needed for living expenses need to be cashed in.