Hi, Gail-
I read your column last week about seniors being able to skip the withdrawals they’re required to take from their IRAs in 2009 and I have a question.

I’ll be 52 years old this year and I inherited my dad’s IRA when he died in 2006. I’ve been taking annual withdrawals as required. Can a non-IRA owner also get to skip their 2009 withdrawal? I’m working and I really don’t need the money.

Thanks,
Laura

Dear Laura,
You are correct. Under the Worker, Retiree, and Employer Recovery Act of 2008, anyone who would otherwise have to take what’s called a “required minimum distribution” [RMD] from an IRA in 2009 can choose not to do so. The Treasury Department confirmed to me that this applies to both IRA owners as well as beneficiaries who inherit an IRA.

As CPA Barry Picker points out, the government isn’t saying you can’t take a withdrawal. Certainly, if you need the money, you’re still free to do so. However, this year -- and this year only -- you don’t have to. The thinking behind this is that if folks are allowed to skip their 2009 RMD, this would leave more assets in the IRA and give it a better shot at recovering some of the value it lost in 2008.

If you are the beneficiary of someone’s IRA and are not their spouse, you cannot “roll” the account into your own name. The deceased individual’s name will remain on the account, with you listed as the person receiving the mandatory distributions.

If you want to minimize the amount of income tax you have to pay on each year’s withdrawal and also give the investments in the IRA more time to appreciate, you can “stretch” the RMDs over your own life expectancy. To avoid a 50% penalty, you must start these RMDs by December 31st of the year following the year the IRA owner died.

As I explained in my previous column, you calculate the amount of each year’s withdrawal by dividing the IRA’s value at the end of the previous year by your life expectancy “factor.” In your case, your divisor would be 32.2 this year. If this is the approach you’re taking, Picker says you can simply forgo your 2009 withdrawal and pick up where you left off when 2010 comes along.

The other option for a non-spouse IRA beneficiary is to simply empty the inherited IRA within five years after the death of the account owner. This is known as the “5-year rule.”

According to Picker, the relief provision means that “If the beneficiary is under the 5-year rule, 2009 is a nonexistent year. Basically, they’re now under a six-year rule.”

For instance, take the case of someone who inherited an IRA in 2004. Instead of taking annual withdrawals, they decide to leave the money in the IRA and simply close out the account in five years. They now have until 2010 to do so.

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