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IRA Mandatory Minimum Distribution Rule Waived for 2009

(Jan. 5, 2009) On Dec. 23, 2008, President Bush signed into law the Worker, Retiree and Employer Recovery Act of 2008 (H.R. 7327). This legislation included a waiver of the mandatory minimum IRA distribution rule (just for the 2009 calendar year) for individuals who are 70½ and older. 

Under current law, people who are 70½ and older are required to distribute a certain amount of funds from their IRA to avoid a stiff tax penalty. But through this recently enacted law, individuals who are 70 1/2 and older can keep all of their funds in their IRA without receiving a tax penalty.

The temporary waiver of the mandatory minimum distribution rule could detrimentally affect donations under the IRA Rollover provision that allows individuals who are 70½ and older to contribute up to $100,000 from their IRAs as direct gift to a charity tax-free. As was reported in an earlier eWire story, a two-year extension (covering years 2008 and 2009) of the IRA Rollover provision was passed as part of the bailout package. 

Part of the rationale for enacting the IRA Rollover provision was that individuals could direct their mandatory minimum distributions to charities to diminish the tax implications of those distributions (mandatory minimum distributions from IRAs are treated as taxable income unless they are contributed to charity). However, because individuals 70½ and older will not be required to distribute funds from their IRA's in 2009, charities could see a reduction in IRA gifts.

To help AFP members and their organizations better understand and promote the IRA Rollover provision in light of this development, attached below is a fact sheet about the provision. Questions about the IRA Rollover provision can be directed to Jason Lee, director, AFP government relations, at jlee@afpnet.org.

Attachments

IRA Rollover Fact Sheet — PDF Format, 25508KB

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