BBDC Systems Corporation

Required Minimum Distributions:

     Many retirees, especially those who have recently retired, have lost a large amount of value from their retirement savings accounts since September. Existing tax rules would have forced them to further deplete their tax-deferred nest eggs when they are at their lowest by taking RMDs from their qualified plans or IRAs. The new law suspends RMDs from qualified retirement accounts for 2009. RMDs for 2008 are not waived by the new law. Ordinarily, by April 1 of the calendar year following the year in which an individual reaches age 70 1/2, the remaining balance in any tax-deferred retirement savings account (401(k) plan, 403(b) plan, IRA, etc.) must be distributed to the individual in full or the individual must begin to receive RMDs from the account. For years subsequent to the first year of retirement, RMDs ordinarily must be made by the end of the current year. In either case, RMDs are calculated based on the account’s balance as of the last business day of the year prior to the year for which the RMD must be made. The IRS imposes an excise tax of 50 percent to the extent a RMD in the proper amount is not made. Under the new law, that excise tax is waived on all 2009 RMDs underpayments ordinarily distributed to retirees. The new law also allows the beneficiaries not to receive distributions in 2009 for the purpose of implementing the five-year RMD schedule imposed on distributions received by beneficiaries after the death of an account holder.

Non-Spouse Rollovers:

    Before the PPA, the ability to roll over a decedent’s interest in a qualified plan, 403(b) plan or 457 plan was limited to surviving spouses. The PPA extended this treatment to non-spouse beneficiaries effective for distributions after December 31, 2006. The rollover must be accomplished via a trustee-to-trustee transfer and the minimum distribution rules of Code Sec. 401(a)(9) must be followed (rather than special rules applicable only to surviving spouses). The new law clarifies that all plans must permit rollovers out of the plan for non-spouse beneficiaries and provide notice of the distribution. In Notice 2007-7, the IRS indicated that non-spouse rollovers were not mandatory. Many lawmakers objected to the IRS’s interpretation and the new law clarifies that plans are required to permit non-spouse rollovers. Mandatory non-spouse rollovers not only benefit same-sex couples but also countless individuals who are beneficiaries. The new law does not change the PPA rule precluding a non-spouse beneficiary to roll over distributions to yet another qualified employer plan, such as a 401(k) plan, as a surviving spouse can. The non-spouse beneficiary is not treated as the owner of the rolled-over assets (as a spouse would be treated). Thus, once transferred to the inherited IRA, the assets may not be further rolled over.