IRS Allows Additional Time to Roll Over 2009 RMDs from IRAs and Employer-Sponsored Plans

On December 23, 2008, President Bush signed The Worker, Retiree, and Employer Recovery Act of 2008 into law. The law waived required minimum distributions (RMDs) for 2009 from IRAs and employer sponsored defined contribution plans (including 401(k), profit-sharing, stock bonus, 403(b), and 457(b) plans).

In many cases, because the law was passed so late in 2008, and because many individuals and plan sponsors were confused about how to comply with the new rules, IRA owners and plan participants received RMDs they weren't required to take, and which they didn't want. Individuals who received such RMDs were allowed to roll them into an IRA or eligible retirement plan (even though RMDs aren't usually eligible to be rolled over). Some individuals failed to complete their rollovers within 60 days, or weren't aware of their ability to roll over the funds. In some cases, employees who received RMDs as part of substantially equal periodic payments, which are also generally ineligible for rollover, were uncertain whether a rollover was allowed.

In Notice 2009-82, the IRS provides relief to plan participants and IRA owners who have already received an unwanted 2009 RMD, and for whom the 60-day rollover period has expired. Under the Notice, these individuals will generally have until November 30, 2009, to complete a rollover. This relief applies to IRA owners, plan participants, and spouse beneficiaries. (Note: this special rule does not apply to RMDs received in 2009 for 2008.) For employer-sponsored plans, the relief applies to any payment that is equal to the 2009 RMD, and to any substantially equal periodic payments the employee received during 2009 that included RMDs.

The Notice cautions that the one-rollover-per-year rule still applies to IRAs. Under this rule, which applies separately to each IRA, only one rollover from a particular IRA can be made to any other IRA in a 12-month period. Roth conversions do not count as a rollover for purposes of this rule.

The Notice also provides additional guidance to taxpayers and plan sponsors in the form of Q&As, including the following:

• The deadline for an employee or a beneficiary that had until the end of 2009 to choose between receiving RMDs under the 5-year or the life expectancy rule is extended until the end of 2010.
• In plans that permit a nonspouse beneficiary to directly roll over a deceased participant's account balance, the nonspouse designated beneficiary has until the end of 2010 to make the direct rollover and use the life expectancy rule with respect to an employee who died in 2008.
• In general, the rollover can be back to the same plan that made the distribution (if the plan permits such rollovers).
• The 2009 RMD waiver does not apply to substantially equal periodic payments taken in order to avoid the 10 percent early distribution tax on distributions prior to age 59½, even if the individual is using the "RMD method" to calculate those payments.

You can find a copy of Notice 2009-82 here.

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Deadline Rapidly Approaching to Recharacterize 2008 Roth Conversions

Did you convert a traditional IRA to a Roth IRA in 2008 only to see your new Roth IRA balance decline due to market conditions? If so, you may want to consider recharacterizing your conversion. A recharacterization essentially allows you to undo the conversion and treat it as if it never occurred. But you must act quickly--the deadline for recharacterizing 2008 conversions is October 15, 2009.

Why would you want to recharacterize your conversion? When you convert a traditional IRA to a Roth IRA, you're taxed as if you received a distribution on the conversion date. But if your Roth IRA has suffered a significant loss since the conversion, you wind up paying tax on assets that no longer exist. A recharacterization lets you undo the conversion, and may result in significant tax savings.

You would also want to recharacterize if you converted a traditional IRA to a Roth in 2008 and then found you weren't eligible to convert because your 2008 income exceeded the $100,000 limit that applies to conversions before 2010.

If you recharacterize your Roth 2008 conversion in 2009, you'll be able to reconvert your traditional IRA to a Roth after waiting at least 30 days following the date of the recharacterization. In addition, if you reconvert in 2010, you'll be eligible for a special rule that allows you to report half of the resulting income on your 2011 tax return, and the other half on your 2012 tax return.

Example(s): Mary converted a $100,000 traditional IRA to a Roth IRA in June 2008. She filed for a federal income tax extension, giving her until October 15, 2009, to file her 2008 federal return. But Mary's IRA is currently worth only $60,000--it has lost 40 percent of its value since the conversion. Nevertheless, Mary must pay income taxes based on the conversion date value of $100,000. She has until October 15, 2009, to recharacterize her conversion, and avoid paying federal income taxes on the $100,000. (If Mary has already filed her 2008 income tax return and paid the taxes on a timely basis, she can file an amended return for a refund, as long as she recharacterizes the conversion by October 15.) Mary can again convert her traditional IRA to a Roth IRA after waiting 30 days from the date of the recharacterization.

To recharacterize a 2008 conversion, you need to carefully follow specific IRS rules. Your financial professional can help you determine if a recharacterization, or reconversion, is right for you, and help guide you through the procedural requirements.

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Market Week Summary for Week Ending September 25

Market Week: September 28, 2009
The Markets

The rally took a breather (or possibly a last gasp?) this week. The Dow backed away from the tantalizingly close 10,000 level with a 177-point intraday swing on Wednesday after the Federal Reserve's discussion of its future bond-buying plans. It was largely downhill from there as the major indexes took back much of last week's gains.

Market/Index	2008 Close	Prior Week	As of 9/25/09	Week Change	YTD Change
DJIA	8776.39	9820.20	9665.19	-1.58%	10.13%
NASDAQ	1577.03	2132.86	2090.92	-1.97%	32.59%
S&P 500	903.25	1068.30	1044.38	-2.24%	15.62%
Russell 2000	499.45	617.88	598.94	-3.07%	19.92%
Global Dow	1526.21	1926.12	1884.05	-2.18%	23.45%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	2.24%	3.47%	3.33%	-14 bps	109 bps

Last Week's Headlines

• After four straight months of increases, existing home sales fell 2.7% in August--a sharp drop from July's 7.2% increase. However, the total backlog of unsold homes was down to an 8.5-month inventory. Sales of new homes were essentially flat after four months of increases, and inventories of unsold new homes fell by 3%.
• As expected, the Fed kept interest rates steady but will extend its purchases of mortgage-backed securities, gradually winding down the program by the end of Q1 2010. However, Fed buying of Treasury bonds, which has helped support that market, will stop at the end of October as previously announced.
• Leading economic indicators tracked by the Conference Board were up for the fifth month in a row. The major factors in the 0.6% August increase were supplier deliveries, the interest rate spread between 10-year Treasuries and the fed funds rate, and higher stock prices. Only three indicators--real money supply, weekly jobless claims, and new orders for nondefense capital goods--were negative.
• Five IPOs that began trading on a single day this week and increased filings for more at the SEC gave another indication of renewed appetite for increased risk.
• Orders for durable goods fell 2.4% in August after a 4.8% increase the month before. A dramatic drop in commercial aircraft orders was responsible for much of the decline. However, even non-transportation-related goods were down slightly after having increased 0.9% in July, and defense-related spending provided much of the support for that figure.
• Gold had its first weekly loss in six weeks, and well-stocked inventories pushed oil down roughly 8%, the biggest weekly loss since July.
• The G20 leaders agreed to promote more domestic consumption by export-dominated China and Japan, a lower U.S. budget deficit, increased International Monetary Fund ownership by developing nations, and reforms in bank compensation policies and capital requirements. However, skeptics noted that the so-called global framework for growth lacks any enforcement mechanism.

Eye on the Week Ahead

Potential window-dressing on the part of large institutional investors could mean volatility in advance of the end of the quarter on Wednesday. Friday's unemployment claims stats are expected to continue to show job losses.

Key data releases: Home prices, consumer confidence (9/29); revised Q2 gross domestic product (9/30); auto sales, personal income and spending, manufacturing (10/1); unemployment, nonfarm payrolls (10/2).

Data source: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

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