Congress and the IRS disappointed investors in late 2008. The steep decline in IRA values caused many investors to ask for a suspension or reduction in required minimum distributions from IRAs and other qualified retirement plans for those over age 701,. Congress did not act, and the IRS said it had no authority to suspend the rules.

But changes were made for 2009 RMDs and you  should factor these changes into your planning. We first alerted members to these changes in December with a posting on Bob’s Journal on the members’ section of the web site. You should check the Journal regularly or subscribe to the RSS function that is explained on the site. (The RSS subscription is free.)

The penalty for failing to take an RMD from an IRA or other qualified retirement plan (50% of the amount that was supposed to be distributed) is waived for those who do not take RMDs in 2009. In effect the Worker, Retiree and Employer Recovery Act of2008suspendsRMDs for 2009. You can take whatever amount you want from your IRA in 2009, and that amount will be included in gross income. But you do not have to take the full RMD if you do not need it or want it. The idea is this gives the IRAs a better chance to recover some of their 2008 losses by compounding from a higher base.

The waiver applies to both original owners and to beneficiaries of IRAs and other qualified plans.

The next RMD will be for 2010 and will be based on the Dec. 3 1, 2009 value-if the law is not changed.

A tricky part of the change affects those who tum age 701/2 in 2009 so that their first RMD is due by April1, 2010. For these IRA owners, no distribution is required for 2009, meaning no distribution is required by April 1, 2010. However, those individuals will be required to take the regular2010 RMD by Dec. 31, 2010 using the Dec. 31, 2009 account value.

Likewise, someone who turned age 701, in 2008 still is required to take the first RMD by April 1, 2009 based on the Dec. 31, 2007, account value.

As we discussed last month, this is a good time to convert a traditional IRA to a Roth IRA. This law makes it a little easier. Under regular law, an RMD still must be taken in the year an IRA is converted to a Roth, and the RMD is included in gross income. In 2009, you can convert whatever amount you want (if your adjusted gross income is less than $ 100,000) and not worry about taking an RMD for the year. The full IRA can be converted.

The RMD always seemed to me to be bad policy. It is based on the notion that Congress should provide incentives to save for your retirement but only for your retirement. There shouldn’t be any money left to pass on to heirs unless you die prematurely. The law was developed at a time when life expectancies and retirement were much shorter. For several years there have been. Proposals to either eliminate the RMD or postpone it until a later age. Congress should use this crisis as a reason to take one of those actions.

Money worries are the most common cause of holiday stress, according to Mental Health America. The 2006 study showed that parents are more stressed than all other demographic groups by finances and females are more likely than men to feel stressed by finances.

Money isn’t everyone’s No. 1 worry, but if it’s yours, why not consider the following New Year’s resolutions to improve your financial life?

Resolve:

1. To write down your goals: Have you ever written down the big things you want in life? Granted, all great dreams don’t cost money, but many of them do. Money buys freedom – to travel, to retire early, to start a business, to change careers.  Putting goals in writing gives them a formality and a starting point for the planning you must do.
2. To evaluate your risk tolerance: One of the most beneficial things financial planners do is help you articulate your financial goals and establish (or re-establish) your tolerance for risk. With the market turbulence that’s marked 2008, many individuals would benefit from an analysis of how much risk they want – or need – to take given what they want to achieve with their money.
3. To track your spending: If you haven’t purchased financial accounting software or set up a reliable accounting method of your own, this is the year to do it. Diligent expense tracking is the first critical step to getting personal finances in order.
4. To consider advice on taxes and planning: Maybe you’ve always winged it with your taxes and considered your company 401(k) the ticket to your financial future. Chances are your planning is inadequate. Start getting references on good tax professionals and consider sitting down with a CERTIFIED FINANCIAL PLANNER™ professional to discuss your current retirement savings picture and what you can do to improve it.
5. To cut your credit card debt: If you can’t ever seem to get yourself completely out of credit card debt, make this the year to do it. Take inventory of your balances, figure out if you can consolidate them under your lowest-rate card, and resolve to pay off an amount that exceeds the minimum – on time, every month.  Oh, and pay cash from now on.
6. To save: If you haven’t signed up for your employer’s 401(k) plan or begun a savings plan tailored for the self-employed, this is the year. And resolve to save at least 5-10 percent of your take-home pay based on your cash flow, and place the maximum in whatever retirement savings plans you qualify for.
7. Get ahead on your mortgage: This advice isn’t for everybody, but if you’ve paid off your credit cards by paying more than the minimum, you can apply the same principle to your mortgage payment. Every dollar you prepay will potentially save thousands in interest over the life of the loan if you plan to stay in your home long-term. In fact, if you make one extra payment a year, either at once or in equal monthly shares over the course of a year, you can cut at least five years of payments on a 30-year loan.  Just don’t short your retirement investment plans to accomplish this.
8. Invest in yourself: If going back to college or taking specific coursework will help you advance in your career, plan to do it. If investing in a health club membership that you actually makes sense for your health as well as your insurance costs, do it.
9. To redefine the way you shop: If you’re an impulse shopper, break the habit in ’09. As a suggestion, get a legal pad and make that your centralized shopping list – use a single page for groceries, stock-up goods (it’s wise to start buying essentials in bulk if you can measure the savings), essential clothing or big expenditures you’ll need to make at specific times. Taking that pad with you wherever you spend money is a good way to keep a grip on your wallet as long as you don’t stray from the list.
10. To attack that miscellaneous column: Do you really need deluxe cable? How much are you paying for your Internet service? Can you wear a sweater around the house and lower the thermostat? In every budget, there are items that can be cut – or at least trimmed. Take a hard look at all your “essentials” to see how essential they really are. Aim for a target of at least 10 percent and start setting that money aside on a regular basis.