RBZ Tax Alert eNews: December 23, 2008


The Worker, Retiree and Employer Recovery Act of 2008 New Economic Relief Act Benefits Seniors and Employers The Worker, Retiree and Employer Recovery Act of 2008 (WRERA) suspends the minimum required distribution for 2009 only. This is cold comfort to retirees, because it provides no relief for the 2008 required minimum distribution. The WRERA is designed to help seniors recover some of the value their retirement accounts have lost this year and ease employer pension funding requirements that could have forced businesses to make large pension fund contributions at a time when cash is in short supply. Excise Tax Affecting Required Minimum Distributions Suspended Many people have been particularly hard hit by the plummeting stock market because of rules stipulating that those age 70½ or over generally must take required minimum distributions (RMD's) from their IRAs, 401(k)s or other tax-deferred retirement plans each year. Failure to withdraw the required minimum distribution (RMD) in any year could result in a 50% excise tax on the shortfall. As a result, those having to take RMD's in 2008 have had to base their withdrawals on December 31, 2007, values — which in many cases were considerably higher than current ones. This requirement has caused them to take larger RMD's than they would have based on current values. These relatively larger withdrawals, combined with the drop in market value of the assets remaining in their accounts, have left many seniors with significantly reduced retirement funds. The WRERA temporarily suspends the RMD excise tax for 2009 for IRAs as well as all defined contribution plans, including 401(k), 403(b) and 457 plans. This gives qualified plan distributees the option to keep remaining funds in their plans for another year without incurring a tax penalty — providing time for their investments to perhaps recoup recent losses. This provision applies to all individuals age 70½ or older, regardless of their retirement plan’s account balance or whether the plan has incurred any losses. The Committee Report makes it clear the new relief also applies to after-death distributions to beneficiaries. Employer Pension Funding Requirements Eased The economic downturn has also greatly affected employers’ ability to fund pension plans. WRERA eases the pension funding requirements enacted in the Pension Protection Act of 2006. If you have any questions about the WRERA, please contact your RBZ representative or other appropriate advisor. We would be glad to answer any questions you may have. RBZ, LLP is one of the largest public accounting and strategic consulting firms in Los Angeles and has been providing tax services for over 33 years. We are located at 11755 Wilshire Blvd., Ninth Floor, Los Angeles, CA 90025. Phone: 310.478.4148 \| Fax: 310.312.0358 \| Web site: www.rbz.com

The Worker, Retiree and Employer Recovery Act of 2008

New Economic Relief Act Benefits Seniors and Employers

The Worker, Retiree and Employer Recovery Act of 2008 (WRERA) suspends the minimum required distribution for 2009 only. This is cold comfort to retirees, because it provides no relief for the 2008 required minimum distribution.

The WRERA is designed to help seniors recover some of the value their retirement accounts have lost this year and ease employer pension funding requirements that could have forced businesses to make large pension fund contributions at a time when cash is in short supply.

Excise Tax Affecting Required Minimum Distributions Suspended

Many people have been particularly hard hit by the plummeting stock market because of rules stipulating that those age 70½ or over generally must take required minimum distributions (RMD's) from their IRAs, 401(k)s or other tax-deferred retirement plans each year. Failure to withdraw the required minimum distribution (RMD) in any year could result in a 50% excise tax on the shortfall. As a result, those having to take RMD's in 2008 have had to base their withdrawals on December 31, 2007, values — which in many cases were considerably higher than current ones.

This requirement has caused them to take larger RMD's than they would have based on current values. These relatively larger withdrawals, combined with the drop in market value of the assets remaining in their accounts, have left many seniors with significantly reduced retirement funds.

The WRERA temporarily suspends the RMD excise tax for 2009 for IRAs as well as all defined contribution plans, including 401(k), 403(b) and 457 plans. This gives qualified plan distributees the option to keep remaining funds in their plans for another year without incurring a tax penalty — providing time for their investments to perhaps recoup recent losses. This provision applies to all individuals age 70½ or older, regardless of their retirement plan’s account balance or whether the plan has incurred any losses. The Committee Report makes it clear the new relief also applies to after-death distributions to beneficiaries.

Employer Pension Funding Requirements Eased

The economic downturn has also greatly affected employers’ ability to fund pension plans. WRERA eases the pension funding requirements enacted in the Pension Protection Act of 2006.

If you have any questions about the WRERA, please contact your RBZ representative or other appropriate advisor. We would be glad to answer any questions you may have.

RBZ, LLP is one of the largest public accounting and strategic consulting firms in Los Angeles and has been providing tax services for over 33 years. We are located at 11755 Wilshire Blvd., Ninth Floor, Los Angeles, CA 90025.

Phone: 310.478.4148 | Fax: 310.312.0358 | Web site: www.rbz.com