The Worker, Retiree and Employer Recovery Act of 2008 is designed to help alleviate the financial burden facing investors who have seen their retirement savings shrink dramatically due to this years’ economic downturn. The new law will provide relief for the 2009 tax year, by suspending the current requirement for mandatory withdrawal at age 70 1/2, known as the Required Minimum Distribution (RMD), and allowing investors to keep their money in retirement accounts past this age.

This has been passed by both houses of Congress and has been signed by the President.

New RMD Applies to All Retirement Plans

The new law will apply to all defined-contribution plans, including 401(k), 403(b), 457(b), and IRA accounts. Suspending the mandatory withdrawal for tax year 2009 on Required Minimum Distributions allows investors to keep the money in their account, if they choose and thereby realize continued tax deferred investing and the ability to grow their assets.

Be Aware of Systematic Withdrawals

Of the biggest potential impact will be to accounts that are set up on an automated/systematic withdrawal system.  For example, many retirees have it set up to automatically withdraw their distributions on a monthly basis.  For many, this is probably a routine that their accustomed to.  If you still need the money as part as your regular living expenses, no worries.  If you don’t need the money and you were doing it out of convenience, then contact your financial advisor/investment firm to make the appropriate changes.

My firm, LPL Financial, will be contacting their clients and working with their advisors to make sure they are aware of this change.

Important Note:

The new tax law does not provide a waiver of your clients’ 2008 RMD or any 2008 distribution that has been delayed until April 1, 2009. This will impact LPL Financial accounts, Pershing accounts, and Direct Business accounts. We anticipate that each of these accounts will have its respective nuances, and we will be prepared to address these issues individually.