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Minnesota Estate Planning Blog

Tuesday, October 27, 2009

Estate Planning Pitfall: You plan to take a retirement distribution later this year

If you’re over the age of 70½ — or if you reach that age this year — you may be planning to take required minimum distributions (RMDs) from your IRA, 401(k) plan or other retirement accounts later this year. But you may be better off taking advantage of a tax law change that lets you skip RMDs this year.

Leaving funds in your tax-deferred accounts as long as possible often can make sense from an estate planning perspective. The longer you allow your retirement funds to grow on a tax-deferred basis, potentially the more there will be for your heirs.

Normally you must take your first distribution by April 1 following the year you turn 70½. After that, annual distributions are required no later than Dec. 31. Many people take their first RMD during the year they turn 70½ to avoid taking two distributions the following year.

In the economic downturn, the value of many investments has declined, so it’s not the best time to make withdrawals from tax-deferred accounts. Lawmakers recognized this when they enacted the Worker, Retiree and Employer Recovery Act of 2008 late last year. The act suspended RMDs for 2009.

If you reached age 70½ before this year, you can skip the distribution that would have been required by Dec. 31, 2009. And if you turn 70½ during 2009, you can skip your first RMD — which would have been due by April 1, 2010 — so you won’t have to take an RMD until the end of 2010.

The act also provides relief for people with inherited retirement accounts. The rules are a bit complicated, though, so if you’re in that situation, consult your estate tax advisor to find out whether you’re entitled to skip this year’s RMD.




From within the Hennepin County, our law firm represents estate planning and elder law clients from Minneapolis, Edina, Bloomington, St. Louis Park, Minnetonka, Plymouth, Wayzata, Maple Grove, Orono, Delano, Brooklyn Park and Brooklyn Center. The Minnesota Law Firm of Lennington Law Firm, PLLC focuses on Minnesota estate planning, wills, trusts, estates, probate administration, asset protection, Medical Assistance planning, Medicaid planning & eligibility, elder law, business succession planning, family limited partnerships, real estate and transactional law. With over fifteen years practicing law, Attorney Peter Lennington is an experienced estate planning attorney, trust attorney, probate attorney, asset protection attorney, Medicaid attorney, elder law attorney, corporate attorney, and real estate attorney.



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