In the IRS’s Special Edition of its Employee Plan News:
On December 23, 2008, the President signed the Worker, Retiree and Employer Recovery Act of 2008 (the Act) into law. Section 201 of the Act waives any required minimum distribution (RMD) for 2009 from retirement plans that hold each participant’s benefit in an individual account, such as 401(k) plans and 403(b) plans, and certain 457(b) plans. The Act also waives any RMDs for 2009 from an Individual Retirement Arrangement (IRA). This means that most participants and beneficiaries otherwise required to take minimum distributions from these types of accounts are not required to withdraw any amount in 2009. If they do make a withdrawal in 2009 (that is not a RMD for 2008), they might be able to roll over the withdrawn amount into other eligible retirement plans. Of course, they must still include any previously untaxed portion of the withdrawal that they do not roll over in their gross income. . .The Act does not waive any 2008 RMDs, even for individuals who were eligible and chose to delay taking their 2008 RMD until April 1, 2009 (e.g., retired employees and IRA owners who turned 70½ in 2008). These individuals must still take their full 2008 RMD by April 1, 2009, or they might face a 50% excise tax on the amount not withdrawn. The 2009 RMD waiver under the Act does apply to individuals who may be eligible to postpone taking their 2009 RMD until April 1, 2010 (generally, retired employees and IRA owners who attain age 70½ in 2009). However, the Act does not waive any RMDs for 2010.
If a beneficiary is receiving distributions over a 5-year period, he or she can now waive the distribution for 2009, effectively taking distributions over a 6-year rather than a 5-year period.
Bottom-line then is this:
If you have a 2008 required minimum distribution that is payable in 2009 (before April 1st of 2009) because you turned 70½ in 2008, you must go ahead and make the payment in 2009 or you could end up paying the IRS a very nasty 50% excise tax on the amount not withdrawn–a catastrophic result when combined with the losses already incurred in 2008 from the stock market.
But if you turn 70½ in 2009 and would have had until April 1, 2010 to make the payment under normal rules, your 2009 RMD is waived even though it could have been made in 2010.