Retirees Can Reap Some Tax Savings In Down Year

From The Associated Press:

Retirees reeling from the impact of the stock market's ruinous slide can take some solace from recent tax-law changes to help minimize their losses.

While the new options are no cause for wild celebration, taking advantage of them offers the chance to save on taxes in 2009 and regain some control over one's finances.

"Even with the market having gone down, you have the ability to cut some of your losses by using tax breaks," said Mitch Franklin, assistant professor of accounting at Syracuse University. "That can make your investment losses maybe a little less painful."

The biggest break for seniors is the one-year suspension of the required minimum distribution (RMD) rule, which Franklin called "a bit of light in this doom."

The rule mandates that those age 70 1/2 or over take a specified amount of money out of their IRA, 401(k) or similar retirement accounts annually. The total is based on their age and account value at the end of the previous year. But legislation passed by Congress late last year temporarily waives the whopping penalty for failing to take out the money: normally 50 percent on the amount that should have been taken out.

That gives seniors flexibility on how much to withdraw from their retirement accounts. They could choose not to touch their account and give their balance time to recover from the market downturn. They could take out whatever they need to help get by. Or they could take a distribution and just sit on it — getting it out of the account in order to lessen next year's required withdrawal.