The Checkout

Congress Asks Bush to Help Seniors on 401(k) Withdrawals

Nancy Trejos

President Bush on Tuesday signed legislation that temporarily suspends a tax penalty for senior citizens who do not take a minimum withdrawal from their 401(k)'s and other retirement accounts in 2009.

But dozens of Republican and Democratic members of Congress are asking the President to help senior citizens whose retirement savings plans have been hit by market losses this year.

Spearheaded by Rep. Spencer Bachus (R-AL) and Rep. Rodney Frelinghuysen (R-NJ), 61 members of Congress on Friday asked the President to direct Secretary of the Treasury Henry Paulson to waive the so-called required minimum distribution rule for 2008. Retirees older than 70 1/2 have to withdraw money from their defined contribution savings plans by Dec. 31 of each year or pay 50 percent of that minimum in taxes. The amount they must withdraw is a percentage based on the account's balance at the end of the previous year.

Because the stock market has dropped so significantly from last year, retirees whose accounts are heavily invested in stocks are faced with having to take their required withdrawal after losing as much as 40 percent of their investments.

In anticipation of continued market losses next year, Congress swiftly approved the Worker, Retiree and Employer Recovery Act (H.R. 7327) earlier this month. It had been introduced by U.S. Reps. George Miller (D-CA), Charles B. Rangel (D-NY), Howard P. "Buck" McKeon (R-CA), and Jim McCrery (R-LA).

The bill's sponsors said they didn't provide for a waiver for this year because they expected the Treasury Department and IRS to come up with a solution. In October, Miller, who chairs the House Education and Labor Committee, and Rep. Rob Andrews (D-NJ) sent a letter to Paulson asking him to suspend the tax penalty for 2008.

Last week, the Treasury and IRS decided not to change the rule. A Treasury official wrote that the agency was limited in its ability to make administrative changes and that changing the rules would be too complicated. Indeed, many seniors have already taken their withdrawals this year.

The members of Congress who sent Friday's letter want the agencies to let those seniors who have already complied with the rule to recontribute to their accounts in order to give their savings time to recover from the battered market.

Said Bachus: "Federal tax regulations should not force seniors to take money from their retirement accounts at a time when the value of their investments has plummeted. The bill pending before the President is a good step going forward, but seniors have already suffered significant losses and administrative action is needed to protect their savings this year as well."

By Nancy Trejos |  December 24, 2008; 7:00 AM ET Economy Watch , Nancy Trejos
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Comments

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nice move but your BILLION dollar holiday on 26 December is a bad move--the feds will all be allowed to go home a tnoon today with full pay as well--Bush is a terrible leader--worst president in history

Posted by: syoung29 | December 24, 2008 8:53 AM

nice move but your BILLION dollar holiday on 26 December is a bad move--the feds will all be allowed to go home a tnoon today with full pay as well--Bush is a terrible leader--worst president in history

Posted by:

Posted by: syoung29 | December 24, 2008 9:09 AM

Now that's a very minor concession by the government. Billions to rich brokers/bankers, the mismanaged auto industry, etc., much of it being used to pay bonuses to the already rich executives. Meanwhile, NOTHING for the workers who lost 40-60% of their 401(k)s, especially those within 5 years of retirement who were already severely penalized with the government sanctioned "cost saving" switch from defined benefit plans to 401(k)s.

Oh that's right. The executives still have their defined benefit retirement plans PLUS their 401(k)s.

Posted by: Rich393 | December 24, 2008 9:43 AM

Yea, hurry up and pass some weak legislation before someone else (Oboma) provides a realistic solution.

Seniors over 62 who live on limited incomes should be exempt from any taxes or retirement withdrawal penalties. They should get free health care and prescriptions.

Too little and way too late.

Posted by: maphound | December 24, 2008 10:21 AM

How about a break for people in their 50s who need to make a withdrawal? Get rid of the 10% penalty.

People in my age group are getting nothing, nothing, under either Bush or Obama. No health care, no nothin'.

Posted by: keeladog | December 24, 2008 10:24 AM

This is another potential giveaway to the wealthy unless total plan value/distribution parameters are defined to allow for the exemption. The net cost to the individual of taking a distribution when the market is down 40% is somewhat less than 2 percent of their entire plan if it is in the early years of minimum distributions. Most retirees will take the distribution BECAUSE THEY NEED the money to meet their living costs. The wealthy, on the other hand, can afford to pass up the tax liablitity and would, in fact, do so with glee !! When are we going to learn that with success comes the obligation to help fund the nation that gives us all the opportunity to be successful.

Posted by: hunterwolf | December 24, 2008 10:28 AM

After Wall Street raided my 401K with its poor management, I don't think I'll get much satisfaction with any withdrawals. Why did the Republicans trash the system of pensions?

Posted by: Outofluck | December 24, 2008 10:36 AM

How many 70+ people have their 401K still invested in Wall Street? While I don't believe government should have such a hold over peoples money in the first place, this legislation is just more bailout of the wealthy.

Posted by: rpatoh | December 24, 2008 11:42 AM

"nice move but your BILLION dollar holiday on 26 December is a bad move--the feds will all be allowed to go home a tnoon today with full pay as well--Bush is a terrible leader--worst president in history"

Certainly not the best, not even close in my view; but seems awful convenient to forget that Democrats are responsible for the current economic crisis and it was his tax cut policies that kept the economy healthy after 9/11. It was the Democrats' pushing under Carter and Clinton for banks to make loans those banks otherwise would not have made ("sub-prime" mortgages and those withn $0 down payments required) to people who couldn't afford those mortgages under conservative banking principles that caused the housing meltdown that triggered this whole recession! And let's remember who's "pals" ran Freddie and Fannie into the ground...Franklin Raines and Jim Johnson and their buddies were not GOP contributors or party big-wigs; they were Dems.

Its EASY to blame the man in power currently (especially when the media makes sure to hide the facts and perpetuate the narrative); just like it was EASY to give Bill Clinton credit for the prosperity of the 1990's when really it was the result of Reagan/Bush 41 winning the cold war (allowing the "peace dividend) and funding the R&D tax credits that created the 90's tech boom and the GOP Congress restraining Clinton's liberal intentions.

The Dems attempt at using the federal government to achieve social re-engineering through legislation like the Community Reinvestment Act, assisted by their friends in the GSEs (Frannie and Freddie) caused the current economic crisis; any one with an economic knowledge base knows that low tax and free trade policies could not have caused the credit crisis that led to the economic meltdown; that this crisis was caused by bad mortgages made to people who couldn't afford them, instigated by federal legislation (push by Dems) that mandated making mortgages easier to obtain, and that those mortgages were bundled into mortgage-backed financial instruments by the GSEs (run by Dems), which then became worthless and the people who should never have gotten mortgages in the 1st place defaulted on those mortgages, making the mortgage-backed securities on all of our banks' balance sheets worth about as much as toilet paper. The Dems deserve MOST of the blame for this financial meltdown, but thanks to American naivete and a biased press; opinions such as the poster I quote will continue to hold sway for at least the near future, wrongly of course.

Posted by: fredgrad2000 | December 24, 2008 12:24 PM

I'm confused about which year the proposed rules would affect: this year, 2008, or next? As the story indicates, many seniors have already taken their mandatory distribution for tax year 2008. Also, many take this via several payouts over the course of the year, e.g., monthly payments. So, the powers should get on the stick about this.

Posted by: Bartolo1 | December 24, 2008 12:29 PM

Once again, George W. Bush proves he is the greatest U.S. President.

Posted by: hclark1 | December 24, 2008 12:48 PM

Wow, how ridiculous to hear this on December 24. The older folks I know who are required to withdraw each year normally take care of it in the first part of December. That way it is taken care of before the holidays, and if there are any clerical errors or confusions, they have some time to get those resolved. I wonder what percentage of people require to take a minimum distribution still have not done so AND will hear about this in time not to do so.

This story is emblematic of the good intentions and horrifically, tragically poor execution of the federal response to this entire crisis. It makes me feel as though there is a dangerous and really absurd limit to how fast our government can respond, even in a financial emergency. There have been months to get this right since the financial crash. December 1 should have been the last possible time to announce it, to have any real impact or fairness.

Posted by: fairfaxvoter | December 24, 2008 12:50 PM

Yet another magnanimous (but trivial and ineffective) gesture from our Dear Leader. W is truly the worst of the worst, and his Administration keeps lurching towards new lows. How much more damage can he do in the next weeks?

Posted by: H5N1 | December 24, 2008 12:53 PM

I agree with Bartolo 1's comments: This article is not well written to emphasize what applies to 2009 versus 2008 that is really too late for most folks who take RMD's.

Posted by: giuseppe59 | December 24, 2008 1:05 PM

Has President Bush responded to the 12/19/2008 letter from Bachus, Frelinghuysen, and other members of Congress?

Posted by: Bill371 | December 30, 2008 11:06 PM

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