The year 2009 is shaping up to be interesting when it comes to making decisions regarding your IRA. First, despite the mini-rally of the past four days, the market is still at a longtime low. But second, there are two unique and temporary laws that have never coincided before.
First, Congress enacted a law late last year lifting the obligation to take Required Minimum Distributions (RMDs) for 2009. That means that if you had already started taking RMDs from your IRA (which are generally subject to income tax), you can keep your distribution amount in the IRA for one year only. (Note, most people reading this probably have not reached the age where they are required to take, or have started taking RMDs).
Second, Congress has extend the rules regarding “IRA Charitable Rollovers” through 2009 also. This allows individuals who are 70 1/2 or older to contribute up to $100,000 directly from their IRA to a charity. Normally, a person would have to take a distribution from the IRA (subject to tax) and then turn around and make a charitable contribution and take a corresponding charitable deduction. However, because of the various limitations on deductions in the Internal Revenue Code, the individual might not be able to deduct the entire amount.
These two different rules don’t necessarily overlap — one allows people to keep their money in their IRAs and one gives them a way to take it out (without paying tax), and they are both temporary. But it’s interesting to see which one will be more important in this economy.