What to Know About IRS Notice 2008-113

In response to the 2008 financial crisis, the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) was enacted. A provision of this law was a temporary waiver of Required Minimum Distributions (RMDs) for the 2009 calendar year. The Internal Revenue Service (IRS) issued Notice 2009-82 to provide guidance on this one-time relief, which allowed account balances a chance to recover. The rules discussed here were specific to 2009 and are no longer in effect.

The 2009 Required Minimum Distribution Waiver

A central component of the relief enacted by WRERA was the suspension of Required Minimum Distributions (RMDs) for the 2009 calendar year. RMDs typically compel account holders over a certain age to withdraw a specific amount from their funds annually. The suspension, detailed in IRS Notice 2009-82, applied broadly to most defined contribution plans.

This included common retirement vehicles such as traditional Individual Retirement Arrangements (IRAs), SEP IRAs, and SIMPLE IRAs. The waiver also extended to employer-sponsored plans like 401(k)s, 403(b)s, and governmental 457(b) plans. The relief covered both original account owners and beneficiaries who had inherited such accounts.

The waiver applied specifically to defined contribution plans and did not extend to distributions from defined benefit pension plans. These pension plans promise a specific monthly benefit at retirement and operate under different rules. Individuals receiving payments from such pension plans were still subject to their regular distribution schedules.

Rollover Rules for 2009 Distributions

The timing of the WRERA legislation meant some individuals had already taken a 2009 distribution before the waiver was widely understood. Notice 2009-82 provided guidance for these situations, allowing distributions that would have been RMDs to be treated as eligible rollover distributions. This meant the money could be returned to a retirement account, preserving its tax-deferred status.

To execute such a rollover, the deadline was extended to the later of November 30, 2009, or 60 days following the date the distribution was received. This extended window provided account holders and their financial advisors time to react to the legislative change. The standard 60-day rollover period was thus temporarily modified.

Account holders had two methods for completing the rollover. They could repay the funds directly back into the same plan from which the distribution originated, if the plan allowed for such repayments. Alternatively, they could roll the money over into another eligible retirement plan, such as an IRA.

Obligations for Retirement Plan Sponsors

Retirement plan sponsors had distinct obligations to comply with the 2009 RMD waiver, including the formal amendment of their plan documents. Sponsors were required to adopt an amendment reflecting the waiver by the last day of the first plan year beginning on or after January 1, 2011. For governmental plans, the deadline was 2012.

The IRS provided two sample plan amendments that sponsors could use. One model established the default that participants would not receive the waived 2009 RMD unless they affirmatively elected to take it. The second model set the opposite default, where participants would receive the payment unless they elected to waive it.

Administrators were also required to provide timely notification to participants explaining the RMD suspension and their options. For distributions that were no longer required but could be rolled over, the plan was not obligated to provide a direct rollover option or the standard 20% mandatory withholding. This ensured participants understood the distribution was optional and were aware of the special rollover rules.

Special Provisions for Beneficiaries

The guidance also included specific provisions for beneficiaries of inherited retirement accounts who were subject to the five-year rule. This rule requires a non-spouse beneficiary to fully liquidate the inherited account by the end of the fifth calendar year following the year of the owner’s death. It applies when the original account owner passed away before their required beginning date for taking RMDs.

Notice 2009-82 stipulated that the calendar year 2009 was to be disregarded in the calculation of the five-year period. This effectively paused the clock for one year, granting these beneficiaries an extension. For an individual whose five-year window would have closed at the end of 2009, the deadline was pushed to the end of 2010.

This relief acknowledged that the market conditions prompting the general RMD suspension also affected beneficiaries on a fixed liquidation schedule. By not counting 2009, the IRS provided these beneficiaries with additional time, allowing the account a potential recovery period before a final distribution was required.