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Here’s a snapshot of the top IRA changes in 2008.
By far, the biggest changes came as part of the Worker, Retiree, and Employer Recovery Act of 2008, or WRERA (which might be an acronym for “we’re in big trouble”).
Under that law, required minimum distributions for IRA owners, plan participants and beneficiaries are waived for 2009. Of note, you are still required to take your RMD if you turned 701/2 in 2008 but decided to wait until this year to take that distribution.
Another provision of WRERA: Starting in 2010, non-spouse beneficiaries aren’t allowed to leave retirement plans with the former IRA owner’s employer. They will have to transfer those plans to an IRA at a bank, brokerage or mutual-fund firm.
Under the Emergency Economic Stabilization Act of 2008, sometimes called the bailout bill, IRA owners who are 701/2 can transfer up to $100,000 to a charity in 2009 without having the amount included in their gross income.
If an IRA owner dies and has designated a revocable trust as the beneficiary, the expectation is that the money in the IRA would be exempt from claims by creditors of the decedent, as they say in estate planning circles.
Not so, according to Seymour Goldberg, author of J.K. Lasser’s “Inherited IRAs” and contributor to Slott’s newsletter.
In a recent Kansas court case, creditors were able to get at the money in an IRA that named a revocable trust as the beneficiary. According to Goldberg, the lesson learned is this: Don’t designate a revocable trust as the IRA beneficiary. Instead, name an irrevocable discretionary trust with spendthrift language as the beneficiary, he said.
Uncle Sam cleared up a big issue with IRS Notice 2008-30: A non-spouse beneficiary of a qualified retirement plan can transfer the account to an inherited Roth IRA so long as the transfer is allowed by the plan and the beneficiary meets the Roth conversion eligibility requirements, according to Slott’s newsletter. Starting in 2010, plans must allow such transfers.
In its private letter rulings (PLRs), the IRS responds to a specific taxpayer’s request for relief. But sometimes these rulings can help other IRA owners who might need guidance with similar problems. Take, for instance, PLRs 200840054 and 200835033, both of which deal with substantially equal periodic payments or 72(t) payment plans.
Some IRA owners who are under age 591/2 can avoid having to pay the 10% penalty on IRA distributions by taking money out in substantially equal periodic payments or SEPP.