Valuing the Economic Impact of the Worker, Retiree, and Employer Recovery Act of 2008

H.R. 7327, the Worker, Retiree, and Employer Recovery Act of 2008, was signed by President Bush on December 23. The proposed bill, which in part offers a waiver of the 50% penalty for failing to take a minimum required distribution, has now become law.

Note that I write minimum required distribution, when most write required minimum distribution, commonly abbreviated RMD.  Much of the tax information published by the IRS prior to 2008 referred to the distribution in the former state (MRD) which is how I learned it over the past decade.  Alas, it appears the IRS has changed its references to the more common RMD beginning with 2008 publications.

I first blogged about the House passage of this bill here.

Now that the bill is law, what are the anticipated economic ramifications of the penalty waiver provision?

On his blog Nerd’s Eye View, Michael Kitces, CFP® presents a thorough evaluation of the real dollars potentially saved by a taxpayer subject to the minimum required distributions beginning in 2009.

Read Michael’s post Is There Really Much Value to Suspending 2009 RMDs?

To summarize his presentation, taxpayers may be better served by evaluating their monthly spending to cut several dollars a week in spending rather than exploit the 2009 RMD waiver.  Let’s face it; the money in an account subject to RMDs is going to have to come out eventually, and the difference between taking a  distribution in 2009 versus delaying distributions to 2010 is only a few tenths of a percent.

So while Congress may profess its hard work to provide relief to the average retiree, the savings on this go-around just aren’t there on this bill.

Related posts:

• Changes to RMD Law Passes House
• Are You Ramping Up for Potential RMD Changes?
• Run Quick Form 1040 Illustrations with Excel

[Image: WhiteHouse.gov]