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Taxes and Your 2009 TSP Distributions: How To Lower Your Taxes
By
John Grobe
Monday, January 8, 2009
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MRD is a short term for
Minimum Required Distribution.
Individuals who are 70 ½ must begin taking MRDs from their Thrift Savings Plan (TSP) and from traditional Individual Retirement Accounts (IRAs) by April 1st of the year after the year when they reach 70 ½. MRDs are calculated based on the year-end balance of the account (i.e., the December 31, 2008 balance determines the 2009 MRD).
There are others who might also have to take MRDs. Those would be the owners of inherited (sometimes called "stretch") IRAs. There is no requirement to take a MRD for Roth IRAs.
There is another exception that applies to federal employees who are still working at age 70 ½ or older. They do not need to begin MRDs from the TSP until April 1st of the year after they retire. MRDs must be taken from traditional IRAs whether you are working or not once you reach 70 ½.
By now, most of you readers younger than 70 ½ are considering moving on to other articles. (See, for example,
Future Retirees: Do You Know Your Minimum Retirement Age?)
At the end of last year (December 23rd to be exact) President Bush signed the "Worker,
Retiree and Employer Recovery Act of 2009". This law allows 2009 MRDs to be waived. In other words, you don't have to take a 2009 MRD unless you want to do so.
As MRDs from the TSP and from traditional deductible IRAs are fully taxable, not taking a MRD in 2009 would lower your taxable income for the year. With traditional non-deductible IRAs, only the earnings are subject to income tax.
In order to waive the 2009 Minimum Retirement Distribution, you need to contact your retirement account provider. The TSP form 73 would be the form used for waivers. The form is available on the TSP website. As the TSP requires monthly distributions (they call them "substantially equal monthly payments") TSP account holders who do not want to take out a MRD should act sooner, rather than later. The TSP still requires a minimum distribution of $25 per month.
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