Are You Ramping Up for Potential RMD Changes?

Boy, if there’s one thing I hate about the arrival of the end of the year, it’s the last-minute tax-related agendas Congress mulls around. 

Remember last year when the Tax Increase Prevention Act of 2007 (H.R. 3996) passed to provide temporary relief from AMT?  And don’t forget the Economic Stimulus Act of 2008 passed just over a month later in 2008.  These bills placed huge strains on the already overloaded IRS and threw monkey wrenches in some advisers’ tax planning strategies.

Case in point: the Wall Street Journal has a good article titled Feds Rethink Rules on Retirement Savings that discusses proposed changes Congress (or the Treasury, who knows?) may make to minimum required distribution laws for qualified and individual retirement accounts.

Click here to read Feds Rethink Rules on Retirement Savings

The critical citation from this article is from Clint Stretch of Deloitte & Touche LLP:

While it’s by no means certain that Congress or the Treasury will act this year, the message for investors is clear: If you haven’t already taken your required minimum distribution this year, consider waiting a while longer, says Clint Stretch, managing principal for tax policy at Deloitte & Touche LLP in Washington.

I bet that if any of your clients read the Wall Street Journal, they probably have already called you and asked if they can delay taking their RMD for 2008.

So what do we do?  Is it prudent to wait and see what happens with the proposed RMD changes?  How long are you prepared to wait?

Looking ahead at December, I’m not terribly excited in delaying RMDs that have yet to leave accounts just to  allocate all the remaining distributions to the final week of the year if the laws don’t change.  And if most firms are like ours, RMDs have been paid monthly or quarterly throughout the year, so there’s little advantage to waiting it out to see what changes are made (e.g. there isn’t much money left to distribute and satisfy the RMD).

Let’s face it; eventually  the money is going to have to come out of the account and taxes will be paid.  Will the Federal tax brackets be the same as today when the money finally comes out of the account?  Will the markets recover somewhat when it’s time to make distributions? 

There are a lot of “what ifs” related to delaying RMDs.  I don’t have a specific recommendation on what to do; each client is in a different situation and has different tolerances for the various outcomes.  Do what is right for the client and let Congress (or the Treasury) battle it out among themselves.