Return Your IRA, 401(k) Distribution
The Wall Street Journal, October 25th, 2009
A measure that allows older adults to skip required withdrawals in
2009 from tax-deferred retirement accounts hasn't always worked as
smoothly as Congress intended.
Now, a new tax ruling can help people clear up some problems linked
to the original law -- but you'll need to act in the next several weeks.
Uncle Sam requires that people age 70½ and older take yearly minimum
withdrawals from traditional individual retirement accounts and
401(k)s, based on their life expectancies, and pay income tax on those
withdrawals.
Last December, however, Congress suspended the withdrawal rule for 2009.
But many people took their distributions anyway. Some couldn't
afford to leave their nest eggs alone. Others took withdrawals before
becoming aware of the suspension. And some 401(k) custodians --
concerned about violating the documents that govern employer-sponsored
plans -- required participants to withdraw their money regardless.
In a ruling released Sept. 24, the Internal Revenue Service is
allowing many people who took unwanted distributions at any point this
year to put the money back into a tax-deferred account by Nov. 30 --
and avoid paying income taxes on the money. Normally, the IRS gives
account holders 60 days to change their minds.
But there are some potential complications. An individual who took
more than one distribution from a traditional IRA in the last 12 months
-- for example, many people take regular monthly payouts -- can put
back only one of those withdrawals, says Natalie Choate, an attorney at
Nutter McClennen & Fish in Boston.
Read more of this article.
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