Change made in federal IRA tax regulations

December is always a busy month for Mark Shuford.

It's the time of year that folks who have to take required minimum distributions from their individual retirement accounts or 401(k) plans call the certified financial planner at Edward Jones to make sure everything is in order before end-of-the-year tax deadlines.

Next December, however, Shuford might not be quite as busy with the annual ritual.

A one-time change in federal tax rules approved last week will give folks who are required to withdraw money from their IRAs, 401(k)s or other employer-sponsored plans, the option to forego a mandatory withdrawal for 2009.

Money goes into an IRA or 401(k) tax deferred, meaning it's not taxed until its withdrawn. Federal tax rules require holders of such retirement plans to at least take required minimum distributions (RMDs) once they reach 70 1/2, however, or they can face stiff excise tax penalties.

"A lot of people take it (the money) out only because they have to," said Shuford. "This just means the people that don't want to don't have to (next year)."

The reason for the one-time only exception to the rule is simple: by allowing people to skip taking a distribution in 2009 there's a chance that retirement accounts hit by the economic downturn will have a chance to recover.

Unfortunately, the new rule didn't apply to required minimum distributions for 2008. Consumer advocacy groups like AARP were pressing for that as well.

"From a planning standpoint, it would have been better if they had passed the legislation not requiring it this year," Shuford said.

Required minimum distributions are based on the value of the retirement account and the life expectancy of the account holder. A downside to the tax formula at play this year is that required minimum distributions are based on older figures. An IRA holder's required minimum distribution for 2008, for instance, is based on the IRA account account balance as of Dec. 31, 2007, when the economic downturn had not really hit investments.

According to IRS tax rules, retirement account owners subject to RMDs for the first time have until April 1 of the year after they turn 70 1/2 to take out their money. Since the rules for 2008 didn't change, folks who hit that magic age in 2008 will still have to take their RMD by April 1, 2009.