THis is an excerpt from Natalie Choate posted yesterday on Leimberg Info. Services.

As you’ll see this foremost of IRA authorities points out that a literal interpretation of the new law means someone turning 70 1/2 in 2008 can SKIP TWO RMD’s

B. Effect on participants turning age 70½

§ 401(a)(9)(H) attempts to deal with the RBD, but its effects are unclear (to me) with respect to individuals who reach age 70½ in 2008 or 2009. The way I read it, and I must be wrong, a person who turned age 70½ in 2008 can skip two years’ worth of MRDs, but a person who reaches age 70½ in 2009 cannot skip ANY year!

Here is what the new law says:

“The required beginning date with respect to any individual shall be determined without regard to [new subparagraph § 401(a)(9)(H)] for purposes of applying [§ 401(a)(9)] for calendar years afer 2009.” § 401(a)(9)H(ii)(I).

Let’s see how this applies to IRAs. (When dealing with a 403(b) plan, or a 401(a) plan where the participant is not a five-percent owner of the sponsoring employer, for “age-70½-year” read “age-70½-year (or year of retirement, if later).”)

1. Person who reached age 70½ in 2008

An IRA owner who attained age 70½ in 2008 can be said to have “accrued” the obligation to take an MRD for the year 2008 (although if he dies before his required beginning date the 2008 MRD “disappears”; it is no longer required). Normally, the deadline for taking any particular year’s MRD is December 31 of that year, but a special rule applies for the first year:

The deadline for the age-70½-year MRD is April 1 of the following year. That deadline is called the required beginning date or RBD.

Minimum distributions must be distributed annually, beginning “not later than” the RBD, for the rest of the participant’s life. § 401(a)(9)(A)(ii).

However, under WRERA, the minimum distribution requirements of § 401(a)(9) “shall not apply” for calendar 2009. Thus, there is no such thing as an RBD in 2009; § 401(a)(9)(A)(ii) simply does not exist. Can this mean that a person who postponed his 2008 age-70½-year MRD into 2009 is simply excused from taking the 2008 MRD—as well as the 2009 MRD?

Matthew Example:
.

Matthew reached age 70½ in 2008. He did not take any distributions from his IRA in 2008. He planned to take the 2008 MRD from the IRA in the first three months of 2009, before his RBD (April 1, 2009). However, the requirement in § 401(a)(9)(A)(ii) that distributions to him must begin “not later than” his RBD simply does not exist for the year 2009. Similarly, the requirement that he take a second distribution by 12/31/2009 (the minimum distribution for his age-71½ year) also does not exist.

Barry Picker points out that the Committee Report of the Joint Committee on Taxation states that a participant who turns age 70½ in 2008 would be excused only from taking the 2009 MRD; since the minimum distribution rules did apply in 2008, the 2008 distribution must still be taken by its usual deadline of 4/1/2009. That may indeed be what Congress intended; I just don’t see how you get that result from the language of § 401(a)(9)(H).