New Tax Relief for IRAs – Bad Deal

It looks great at first glance, but looking closer it appears to be too little, much too late.

New legislative action has been enacted that waives the Required Minimum Distribution (RMD) from IRAs and other types of pension plans for 2009. The idea is to help retirees who have seen their account values drastically reduced by the recent market disaster by allowing for the monies to remain in a tax advantaged account for at least one more year.

Traditionally, when an IRA owner turns 70 1/2 they are required to take an annual distribution and pay taxes on the withdrawal. The RMD calculation applies the prior year’s account balances against a life expectancy factor to arrive at the minimum amount to be withdrawn by December 31st. As most accounts were valued significantly higher than they are now at the end of 2007, the amount of money that was required to be withdrawn in 2008 is disproportional to the current account value. Unfortunately, while it seems to be a nice plan to help seniors, this new law misses the intended mark by a mile.

Here’s why…

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