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Govt mulls change in retirement account withdrawals

November 20, 2008 by  

The rules governing withdrawals may changeAs the economic downturn continues to challenge the savings plans of millions of retirees, the government is considering changing the rules governing retirement account withdrawals.

The Treasury has been mulling a temporary adjustment to the requirement that people aged 70 ½ and older withdraw a minimum amount from their account on an annual basis, the Wall Street Journal reports.

This requirement is currently problematic because the distribution amounts are calculated in line with the market value of the account as of the last day of the previous year.

In the current climate in which retirees have already seen the value of their accounts plunge, using December 2007 as a guide to withdrawal amounts does not seem to make sense, the publications states.

Potential changes include permitting people to delay their withdrawals, reducing the amount of required withdrawals and providing tax relief for people who have already been forced to withdraw this year.

Commenting on the losses faced by many retirees, AARP’s Bill Novelli told the publication that "older individuals have disproportionately experienced these losses – and many do not have the luxury to wait for a market rebound."

Recent research has suggested that some baby boomers are postponing retirement due to financial uncertainty.
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  • Bob Livingston

    I don’t think the government should tell you when you have to withdraw retirement funds period!  If you are in a position to not need to withdraw the funds, why should you be forced to… whether during good times or bad times.  Another example of government sticking their nose where it doesn’t belong. –Bob.

    • http://none Peter Stabovitz

      I retired at 70, drawing Social Security, and had an IRA that I was also going to draw some off of. The required 70 1/2 withdrawal hit me hard. Also I just decreased my monthly draw, because of the finanicial situation and a small amount left in the IRA, but will probably be hit with penalties because it will be less than the required minimum. With the lower value now, the minumum should be lowered, preferably done awawy with. Why was the 70 1/2 and minumum distributions put in in the first place? IRS!

  • Bobbie Mueller

    I looked at my IRA and it’s current value is about half of what it was the previous year.  I agree it does not make any sense to withdraw the amount based on December 31st value the year before.  With that withdrawal, I am “selling” stock at the low price and why would a reasonable person want to do that?  (That’s the “conventional wisdom” of which you’re referring, right!)

    • Martha

      you don’t have to sell the stock, just transfer it to a non-IRA account.

      • http://www.personalliberty.com GARY

        Isn’t there tax penalties for withdrawing from an IRA to a NON-IRA account???

  • Bob Wise

    In all this bailout of banks and greedy corporate executives there is no mention of the enormous losses that retirees have incurred. Whilst no handout is suggested Congress could help the retirees by enacting a tax rule which allows all retirees over 65 to be excused taxes up to and including $150K p.a of income.
    This would ease the huge burden that retirees have incurred in losing over $2 Trillion in savings in the current economic crisis. It would also release money into the conomy with out adding to the deficit or bailout costs. 

    • Timothy Dobbins

      I converted to a Roth when it started in 2000 and had a five-year window to pay the taxes. I’m retired and no longer can contribute to a Roth. I have written my reps about enacting another five-window for conversion, with the tax based on the first year IRA value. This would bring the gov’t lots of much-needed revenue, and allow us to convert mmore of our IRAs. As expected, I received no response from my congressmen.

  • Hal Matheson

    The last thing this market needs is the forced sale of assets to cover the RMD. When a market is declining, don’t make it worse by increased selling pressure.

  • http://bluesmovers.com John Abrahamsen

    The infamous Stamp Act, and Tax on Tea were a pittance compared to what we suffer today!  Do we have the strength of will to stand up to our government with the multitude of over-reaching taxes, regulations and other abuses?  Freedom is dying, I fear.  This little rule is nothing when you compare it to the mountain of insults and out-right theft of our rights, liberties and property which have been perpetrated in our name.  What to do?  This used to be a free country.  I would not call it that any longer.  The bill of rights is meaningless, as it is trampled at every turn.  The pursuit of life, liberty and happiness has become just an elusive dream for us today in America.  This is the saddest prospect I can imagine.  Something I never thought I would see when I was younger, and learning about American History.

  • http://www.fourward.com Warren Ward

    Don’t expect the party of envy to be easy on anything that you “rich” retirees, who have accumulated your wealth from government-sponsored programs at the “expense of the poor!”  I told my wife I would never participate in one of these programs, because, as they have been discussing in the Obama camp, the Feds could come in at any time and take your money in the name of “fairness” and force you into the dead Social Security program.

    That time seems to be rapidly approaching.  Too bad government had to insert itself into the mortgage and debt industry in the first place.  This was bound to happen when these lawyers, not producers, dabbled in the free enterprise system which ALWAYS works when allowed to.  This economy was set up for an Obama, who wants to fundamentally change what has worked for over 230 years into what has always failed.

  • steve sheehy

    Government should declare all credit card balances null and void. They bailed out millionaires, NOW BAIL OUT US!!!!!!!!

    • Overend Watts

      Only an imbecile carries a balance on a credit card. The usurious interest penalty is just another tax (just like lottery tickets) paid only by those with insufficient math skills.

      Bail yourself out. Get informed.

  • Joseph C. Moore, Cpo USN Ret.

    The economic downturn is a result of mismanagement in all sectors. Asking the government to remedy anything while leaving the purveyors of the problems in charge is utter folly. We are following the depression era policies of FDR that prolonged the depression. Obama will prolong our current recession into a depression with the FDR tactics. The problem was NOT freemarket failure but, goverment manipulation of the market. Why do we keep electing people who feel that more government control will alleviate any problem?

    • Michael Dodd

      That’s an easy one…more government control means more government handouts to those not contributing to society, but still possessing the right to vote. Vicious cycle we’ve let ourselves get into.

  • Jim Terry

    The “report” on Fox is that the gas fiasco of last summer was the trigger: prices based on speculators trading against a fake shortage. As the demand was declining, they still managed to ramp up the barrel price to astronomical levels in the U.S., and then every opportunistic organization hedged against >$100/barrel price…a downturn in demand driven into overdrive by a near three-fold increase in price slammed the whole farce into the wall. Everything on this planet runs on ONE thing–Petroleum. Jack around with the price of that one precious commodity and you cannot write fiction any more devastating. Put a bunch of Circus Clowns in charge of making life and death decisions about a free market economy, watch them attempt to legislate prosperity, and add in a pariah spouting evangelical rhetoric of “new” government myth of prosperity–and people sit and believe this waste of oxygen. All I can do these days is laugh at the maniacal behavior of those who sit in their tidy little positions of power. The great equalizer is the three basics: food, clothing and shelter, and Tricorder Readings indicate society as we know it is about to get a rude awakening. Welcome to Mr. Toad’s wild ride.

  • Keith

    I’m thinking totally different regarding my 401k. I want to withdraw all of the funds asap and convert it to gold. I’ll pay the taxes and still be better off a year from now holding gold when the dollar will be worth less by some large % over what it is worth today. Who really wants to risk holding US dollar investments in these times?

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