Minimize Stock Market Loss Effect with Required Minimum Distributions (RMD'S)

Current IRS regulations require that seniors begin withdrawing funds from tax deferred savings accounts and IRAs in the year in which they turn 70 1/2 years of age. For many seniors those mandatory withdrawals will begin next year, a year in which the value of many retirement savings accounts are down 35-50% in value.

The forced withdrawal of these depressed investments will be very costly for seniors as investment in mutual funds that were worth $50.00 a share just one year ago will now be sold to at $25.00 a share to make the required minimum withdrawal. Many seniors fear that the forced withdrawal of these half-valued funds will have the effect of depleting retirement savings the half the time originally planned at retirement, causing retirement income for many seniors to run out far ahead of expectations. For some seniors this could mean retirement savings will be completely depleted halfway through their retirement years.

The senior taxpayer in this predicament will actually be hit with a double penalty as in addition to the depressed value of the funds withdrawn federal taxes must be paid on the funds withdrawn.

Several organizations that represent seniors, including the National Association of Retired People (AARP) have petitioned members of congress to temporarily suspend the IRS regulation to give senior's IRA investments in the stock market the opportunity to recover from an average loss of 37% in value. The response from congress has been lukewarm at best as congress currently is focused on the financial bailout package for the banking industry and is locked in serious debate as to what to do for the automobile industry.

Congressional analysts give little hope of any action suspending current RMD withdrawal requirements.

Financial advisors offer one solution to seniors who wish to maintain retirement assets in current IRA investments in hopes of an economic and stock market recovery. These analysts suggest that while the required minimum distribution (RMD) must be taken annually beginning age 70 1/2 and taxes must be paid on the amount distributed, senior investors can avoid holding the depressed value dollars by reinvesting the remaining RMD amount in the very same mutual fund from which they the IRA funds were withdrawn. This can be done by opening an equivalent non-IRA account and depositing the funds in this account. While these reinvested funds will not have the benefit of growing tax free as they did in the IRA they will allow the senior investor to avoid holding the dollars at the depressed stock market value and give opportunity to recover the value lost once the stock market recovers.

In instances in which funds were withdrawn from multiple accounts in order to meet the RMD requirement, reinvesting a pro-rate share into the same funds as a non-IRA investment will ensure that these dollars keep working as before the withdrawal, and hopefully allow the senior investor to recoup his or her losses.

This appears to be good advice for seniors who are forced to withdraw depressed value funds and have no need for additional income.