Congress Changes Retirement Rules

Congress slipped a big change for Individual Retirement Accounts into the pension bil that passed Thursday.

Lawmakers inserted a provision that would suspend required minimum distributions temporarily. People over age 70 and a half must take a certain amount of money out of their IRA's every year. These required "distributions" have become quite controversial this year, because of how they are calculated.

This provision suspends the required minimum distributions or RMD's next year, for 2009.

Here's why RMD's have suddenly become controversial:

The law says you have to use the value of your account at the end of the prior year and you must take out a certain percentage based on your life expectancy. Retirees were protesting, because almost everyone's portfolio was larger last year than it is now. If they had to take money out based on last year's value, it would be a big hit to what is now a smaller portfolio. If they don't take the RMD, they're still in the hole, because the tax code says they have to pay a penalty of half of the amount that should have been withdrawn.

Watch for President Bush to sign it into law.

The proposal is HR 7327.

Comments

They should stop the penalties and the taxes on all 401K's and pension funds for early withdrawal and allow people at any age to withdraw their money to give them a boost in this weak economy.

Posted by: Retired | December 12, 2008 11:31 PM

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http://termlifeinsurance2.com

Posted by: Deborah | December 13, 2008 12:44 AM

Posted by: Deborah | December 13, 2008 12:51 AM

To poster: 'Retired:"

The whole purpose of retirement plans is to save for later years.

That's why there are penalties for early withdrawal. Those rules cannot be suspended when times are difficult or else there would be a gazillion seniors who need welfare in the future.

Mark
http://blog.mdwoptions.com/options_for_rookies/

Posted by: Mark Wolfinger | December 15, 2008 10:42 AM

So basically our incompetent Congress is actually not giving retirees any relief this year when they need. Instead, they suspend next year's RMD which will be based on end of year 2008 values which will be much lower for most. Thanks for nothing guys. Keep up the incompetent work.

Posted by: Hugh | December 15, 2008 11:23 AM

BTW, the original blog is incorrect. Unless the market drops substantially NEXT year this new law won't help anyone. The law is for 2008 RMDs (which are taken in 2009) not 2007. If Congress had suspended the 2007 RMDs that would have been huge for many senior investors. You didn't seriously think our Congress would get something right did you?

Posted by: Hugh | December 15, 2008 11:28 AM

This blog is completely correct.

Let me quote from a note I received Friday from CCH:

"Of special concern to older taxpayers, the Act suspends – for 2009 only – the requirement that individuals over 70½ take required minimum distributions from their retirement plans such as IRAs and 401(k)s.

“This means that people will not be required to deplete their savings at a time when many accounts’ values have already been ravaged by declines in the stock market,” noted Mark Luscombe, JD, CPA, CCH principal federal tax analyst."

CCH, a Walters Kluwer business unit, is a leading provider of tax information. hjb

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