Recent Legislation

Worker, Retiree, and Employer Recovery Act of 2008

Elder Law: 2009 IRA distribution need not be taken By William Edy • Special to news-press.com • January 4, 2009

On Dec. 23, President Bush signed legislation that changed the rule for taking required minimum distributions from traditional IRAs and 401(k)s. Those taxpayers over 70-1/2 have been required to begin withdrawing distributions from the retirement accounts that were allowed to be funded with untaxed earnings and allowed to grow tax deferred until the person retires, which is presumed to be by age 70. Because this privilege of funding the account with untaxed earnings and of allowing the investment account to grow tax deferred was not enacted by Congress as an additional means of creating a larger inheritance for heirs, but was established to supplement other retirement income, the account holder is required to take the annual distributions of a certain percentage of the account into their income each year after age 70-1/2 . Taxpayers who ignore the annual distribution requirement usually face a penalty in the form of a 50 percent excise tax on the amount they failed to properly take. These rules do not apply to defined benefit pension plans and Roth IRAs.
The taxpayer may not need that amount because they have a pension in addition to their social security or they may have other pre-taxed savings. They may not now want to pay the income tax on those earnings and the deferred tax that has built up on the account. They especially may not want to liquidate a sufficient amount of the investments in their retirement account to make that distribution because the down market has decreased the value of their investments.
Largely in response to the down market, the new legislation suspends the requirement that required withdrawals be taken next year, in 2009. This seems fair because it puts the IRA account holder on the same footing as a person who invested outside of the IRA program, where they can time their investment decisions without the artificial hammer of having to take these often senseless withdrawals in bad economy.
Just as many other legislative responses to our economic downturn, including the recent increase in the FDIC government insurance of bank deposits, the suspension of IRA withdrawals terminates at the end of 2009. It remains to be seen whether these responses to our economy should not be extended, especially in light of a new federal administration. The actual method of calculating the required minimum distribution, which amount changes every year, can be found in IRS Publication 590.
CPA Ed Slott, a frequently quoted IRA consultant, was quoted in the Dec. 28 issue of the Wall Street Journal indicating that this suspension for 2009 will present added confusion to the already overly complicated IRA rules contained in our tax code. He notes that normally taxpayers are required to begin their required minimum distributions from their retirement accounts by at least April 1 (not April 15) of the year after the year in which they turn 70-1/2. An IRA account owner who turns 70-1/2 this year has until April 1 to take their first required minimum distribution. Slott worries that that taxpayer who sees the headlines that withdrawals need not be taken in 2009, may fail to do so for their first 2008 distribution and incur the 50 percent excise tax.
The new law only applies to withdrawals required for 2009, which normally could have been postponed until April 1, 2010. The IRS has advised that no relief is contemplated at this time for relief for withdrawals for 2008, which would have been based on account balances as of Dec. 31, 2007, and can be postponed until April 1, 2009. That 2008 distribution must still be taken even if in 2009. Important: Only the 2009 distribution may be skipped as of now.
However, the account holder can always take a larger distribution or even one in 2009 if they are willing to pay the taxes on the unearned income and the deferred gain. For those who lost their employment and have little taxable income it may be something to discuss with their advisors.
The postponement of the first distribution until April 1 of the year following turning age 70-1/2 applies only to the first required distribution. The second required distribution and all subsequent distributions must be taken by Dec. 31 of the distribution year. Thus, those turning 70-1/2 in 2009 may skip the first year's distribution which would normally be required by April 1, 2010, except for this law suspending the 2009 distribution, but they will still be required to take their "second" withdrawal for 2010 by Dec. 31, 2010.
Slott also pointed out that it is still permitted to make a direct donation to a public charity from their IRA if over age 70-1/2 without paying income taxes in 2008 and 2009, although because the 2009 required distribution is suspended, the 2009 charitable distribution may be rethought by some taxpayers who do not have pure charitable intent in mind.
Because withdrawals are not required in 2009, what would normally have been a required withdrawal may be used to fund the conversion to the Roth IRA, provided you meet the requirement of having an adjusted gross income of less than $100,000. Most advisors recommend converting if you meet the income limit because not only are the values of the traditional IRA lower this year, but tax rates may be increased in the future due to our increasing national debt.
Now might be a good time for those approaching retirement to meet with their financial advisor and review their options in light of this new change in IRA administration.

American Housing Rescue and Foreclosure Prevention Act of 2008

American Housing Rescue and Foreclosure Prevention Act of 2008
H.R. 3221, the “American Housing Rescue and Foreclosure Prevention Act of 2008,” was signed into law by the President on July 30, 2008. It is designed to support the failing housing market and tighten lending practices and reform financial institutions associated with that market. Included in the bill is the “Housing Assistance Tax Act of 2008. The tax incentives are fully offset by revenue raisers.
Highlights:New Tax Credit for First-Time Homebuyers Qualified homes of first time homebuyers purchased after Apr. 8, 2008 and before July 1, 2009, are eligible for a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately).
Two or more unmarried persons purchasing a home together will share the credit as described by the IRS in future rulings.
Phase out for single filers: MAGI between $75,000 and $95,000
Phase out for joint filers: MAGI: $150,000-$170,000
Definition – First Time Homebuyer – A homebuyer that has no present ownership interest in a primary residence in the U.S. during the 3-year period before the purchase of the new home subject to the credit.
The credit is subject to the regular recapture rules.
Eligible first-time homebuyers who purchase a principal residence after Dec. 31, 2008, and before July 1, 2009, may elect to treat the purchase as made on Dec. 31, 2008.
Unlike any other individual federal tax credit, taxpayers must repay the first-time homebuyer credit. They will have 15 years to repay the credit, interest free. Repayments start two years after the year in which the residence is purchased. Payments must be made in equal installments over those 15 years.Property Tax Deduction for Non-Itemizers Available only in 2008, taxpayers who claim the standard deduction instead of itemizing deductions are permitted to claim an additional standard deduction for state and local property taxes paid. The deduction can't exceed the lesser of state and local property taxes actually paid or $500 ($1,000 for joint filers) Interest Earned on Exempt Facility, Qualified Residential Rental, and Veterans' Mortgage Bonds Isn't an AMT Preference For bonds issued after July 30, 2008, the Act provides that tax-exempt interest earned on the following instruments is not a preference item for AMT purposes:
(1) exempt facility bonds issued as part of an issue 95% or more of the net proceeds of which are used to provide qualified residential rental projects (2) qualified mortgage bonds and (3) qualified veterans' mortgage bonds.Information Reporting of Merchants' Credit Card and Third-Party Network Sales—After 2010 After 2010, the Act generally requires banks to file an information return with IRS reporting the gross amount of credit and debit card payments a merchant receives during the year, along with the merchant's name, address, and taxpayer identification number (TIN). Similar reporting is also required for third party network transactions. This is a strong incentive to correctly report income. It is believed this will raise over $9.8 billion over ten-years.
For the full text of the law go to http://www.govtrack.us/congress/billtext.xpd?bill=h110-3221 or from within Drake Software, select the research tool on the toolbar. When you reach RIA, Type Housing Act 2008 and select News. Select Search.