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