ShareThisCongress passed a bill in December to suspend, for 2009 only, the rule that requires some people to withdraw a certain percentage from their tax-deferred retirement accounts each year.
The rule in question requires people who are older than 70 1/2 to withdraw a minimum amount from their traditional individual retirement accounts each year. The rule also applies to traditional 401(k) plans and similar workplace accounts, but not to your own Roth IRA.
People of any age who have inherited either traditional or Roth IRAs or 401(k) accounts from anyone other than a spouse also must take required minimum distributions each year.
The percentage you must withdraw each year is based on your age at the end of that year and is applied to your account balance at the end of the previous year. The older you are, the bigger the percentage.
Withdrawals are taxed as ordinary income. The rule is designed to make sure that tax-deferred retirement accounts eventually get taxed. The penalty for not taking the distribution is half of the amount that should have been taken.
Many people who don't need to tap their retirement accounts for living expenses don't like the rule because it forces them to pay taxes sooner than they might like.
AARP and others lobbied Congress to suspend this rule for 2008 and 2009. They said it's not fair to base withdrawals for 2008 on account values at the end of 2007, which were much higher than they are now if they were in stocks.
The bill passed in December suspends the requirement for 2009 only. The suspension applies to anyone who normally would have to take a distribution in 2009, including people with inherited retirement accounts.
Brokerage and mutual fund companies have different deadlines for requesting distributions from IRAs.
At Charles Schwab, for example, customers taking cash distributions from their sweep accounts had until midnight Dec. 31 to request their distribution.
Instead of selling funds or securities, you can also meet your distribution requirement by transferring securities from your IRA to a taxable account. The amount transferred will still be taxed, but you will not be forced to liquidate your position. This is known as an in-kind distribution.
Some advisers recommend clients consider taking money out of their retirement accounts every year, whether they need to or not.
If you think your tax rate will be higher in the future -- because your income will go up or the government will raise taxes -- it might make sense to take money out sooner rather than later.
Given the likelihood that tax rates will rise, especially on higher-income people, some finance experts also advise clients to consider taking money out of their IRAs in 2009, even though they won't have to.
They warn that people who turned 70 1/2 this year and decided to postpone their first required distribution until April 1 of next year -- as allowed by law -- will still have to take their distribution for 2008 by April 1 of next year. Like everyone else, they won't have to take a distribution for 2009.
(E-mail Kathleen Pender at kpender(at)sfchronicle.com)
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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