The Savage Truth on Money by Terry Savage

If you're a senior fortunate enough not to need to withdraw money from your IRA, you get a special break this year. For this year only, those required withdrawals have been suspended. And even if you've already taken money out, you can return it to your IRA without penalty if you choose.

Minimum required distributions from retirement accounts after age 70-and-a-half are one of the most difficult, annoying and nonsensical regulations that seniors must confront. The idea stems from the fact that the government let you grow your money tax-deferred in your retirement plan. And they want to make sure they get their cut before you die by requiring you to withdraw from your account during your senior years.

Failure to withdraw enough money results in steep penalties, so every year, seniors and their IRA custodians must calculate the correct amount — based on the total asset value of all retirement accounts at the end of the previous year.

But not this year. For 2009, the required minimum withdrawal rules have been suspended. That's because Congress recognized that many seniors lost a fortune in their retirement investment accounts. They were forced to withdraw last year, based on the higher 2007 year-end value of their account, even though they lost money in the second half of last year.

Eliminating the forced withdrawals for 2009 was designed to give people who didn't need the cash a chance to rebuild their portfolios. It was a shame the government couldn't have acted more quickly, eliminating withdrawals last year. Then the money left in the accounts could have benefited from the 50 percent rebound since the lows last March.

But better late than never. So the required minimum withdrawal is not required for 2009.

There's good news if you already took one or more withdrawals from your IRA this year. You can put the money back — without penalty — to let it continue to grow tax-deferred. This applies to all withdrawals from defined-contribution plans, such as IRAs, 40l(k)s, 403(b)s and even to annuity payments received from investments within these plans.

The return provision does not apply to pension checks received from defined benefit plans. And another important note: Those who are withdrawing from inherited IRAs do not have to withdraw in 2009, but they may not return withdrawals already taken this year.

There always has been a 60-day period in which you can do one withdrawal from an IRA and then return it, or put it another IRA.

It's called a "rollover." But the special provision for 2009 allows you to return multiple withdrawals made during the year. They recognize that many seniors take checks on a monthly basis and didn't know the withdrawals were not required this year.

The return of 2009 withdrawals must be made by Nov. 30. (And even if you receive a scheduled monthly withdrawal in December, you'll have 60 days to return that to your IRA without consequences.)

Mark Luscombe of CCH, the tax analysts, explains how these transactions would be reported on your tax return:

"For reporting the rollover from a 401(k) plan, the distribution would be reported on Form 1040 Line 16a (assuming that the line numbering does not change before the 2009 Form 1040 is finalized), and the rollover would be deducted from the amount, if any, reported on Line 16b, with the word explanation 'Rollover' inserted on Line 16b.

"Similarly, for reporting a rollover from an IRA to another IRA, the distribution would be reported on Form 1040 Line 15a, and the rollover amount deducted, and the balance, if any, reported on Line 15b, with the word 'Rollover' inserted on Line 15b."

I'm including that specific information in this column because you know you'll be asking next April when it's time to file your taxes! So please clip this column for future reference.

What if you need those withdrawals?

Of course, this information is good news only for those who don't need those annual withdrawals because they have enough other savings or income to live on each year. There are many seniors who are forced to withdraw to supplement their income.

Keep in mind that anyone over age 59-and-a-half always can take any amount out of a retirement account without penalty — but subject to ordinary income taxes. That's never advised because the goal always has been tax-deferred growth of assets until retirement, when it was assumed you'd be in a lower tax bracket.

With the latest rumblings of increased tax rates, that might not be a safe assumption. But if you're one of the fortunate ones who does not need to withdraw from your retirement plan this year, you won't be forced to do so. That's likely to be the best tax break you get this year. And that's The Savage Truth.

Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange. She appears weekly on WMAQ-Channel 5's 4:30 p.m. newscast, and can be reached at www.terrysavage.com. She is the author of the new book, "The New Savage Number: How Much Money Do You Really Need to Retire?" To find out more about Terry Savage and read her past columns, visit the Creators Syndicate Web page at www.creators.com.

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