honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Thursday, February 5, 2009

U.S. tax code must be simplified

By Michelle Singletary

What lessons can we learn from the high-profile tax cases of newly installed Treasury Secretary Timothy Geithner and now Thomas Daschle, who withdrew Tuesday as President Obama's pick for secretary of health and human services?

How about that the darn tax code is so complex and long that Geithner and Daschle did what so many others have done — messed up big time? Geithner had to pay the government $43,000. Daschle recently wrote a check for $146,000.

Since we have no evidence that Geithner and Daschle intentionally tried to cheat on their taxes, I'm willing to give them the benefit of the doubt. But I'm getting tired of appointees with tax issues. I mean, if these folks have the money to get their taxes prepared correctly and still can't, the IRS better give enormous leeway to regular taxpayers.

That brings me to a recent tax change that I'm sure will cause a lot of taxpayers to make some mistakes. It concerns the required minimum distribution seniors have to make from their retirement plans.

For 2009 only, there will not be the usual required minimum distributions from retirement plans such as 401(k)s, Roth 401(k)s, 403(b)s and certain 457(b)s. The distribution rules also apply to traditional individual retirement arrangements and accounts and IRA-based plans such as Simple IRAs and SEPs (simplified employee pension plans), which provide employers with an easy method to make contributions toward their employees' retirement or, if self-employed, their own retirement.

Normally, tax law mandates that people with certain retirement plans take a minimum withdrawal every year after reaching the age of 70 1/2. If you fail to take out the minimum distribution, you face a huge penalty. The amount not withdrawn is taxed at 50 percent.

I wrote about this one-year waiver and, not unexpectedly, some seniors had questions. Here are a few I received, along with answers from the IRS:

Q. As a result of the law change, will it mean a double distribution requirement in 2010?

A. If you decide to skip taking a distribution for 2009, you will not have to double the amount required for next year. The waiver for 2009 is not a deferral.

Q. I'm wondering if there's been any more discussion about providing some tax relief for those who had to suck it up and make a withdrawal from their plans last year?

A. Sorry, the IRS does not anticipate providing any additional relief for those who had to take required minimum distributions in 2008.

Q. Is there any corresponding information for us federal retirees with TSP (Thrift Savings Plan) withdrawal requirements? I am under an automatic monthly withdrawal plan which, so far, is continuing. Can I stop it for 2009?

A. Yes, you can stop your monthly withdrawal plan payments, but only if your plan allows you to do so. You will need to check with your plan.

Q. My mother has been taking out the minimum distribution on my deceased father's IRA since his passing more than 10 years ago. Does the rule change apply to deceased IRAs as well?

A. The rule does apply to an inherited IRA. So, this mom does not have to take a distribution in 2009.

If you have any additional questions, and I'm sure many of you still will, contact the IRS toll-free at 800-829-1040 and then dash off a note to your congressional representatives pleading that they make the tax code less complex.