Senior citizens across the country got
good news in December when reports out of Washington stated that Congress suspended the law that requires those 70 ½ or older to withdraw funds from their retirement plans in 2009, even if they dont need the money. Traditionally,
senior citizens have had to withdraw whats known as required minimum distributions, or RMDs, every year, with the price tag based individually on the IRA owners age and IRA balance on December 31 of the previous year.
Simply put, RMDs work in the following way, as outlined by K
iplinger.coms Editorial Director, Kevin McCormally:
An 80-year-old is required to withdraw about 5.4% of his account this year. If he had $1 million in the account at the end of last year, the 2008 payout would be $54,000. But what if market losses have driven the IRA value down to $600,000? He still has to withdraw $54,000, even though that is 9% of the account's current value.
Advocates for the decision suggest that the moratorium was a necessary move based on the way IRAs and 401(k)s have suffered in the stock-market recently. According to McCormally,
U.S. markets have lost more than $8 trillion in value since they peaked in October 2007. The last thing seniors want to do is sell investments that tanked to take a retirement-plan payout that would further deplete their nest egg. The less money in the account when the market recovers, the less chance they have to rebuild their wealth.
Many seniors thought that the decision to place a moratorium on 2009 withdraws would lead to the IRS and Treasury rethinking expected 2008 withdraws, but recent reports suggest otherwise. From Forbes.com:
Treasury and the Internal Revenue Service have decided, however, that since Congress has now acted, they will not allow this, according to a letter being sent to several senators and congressmen who had requested help from Treasury.
Any changes that the Treasury could make administratively for 2008 would be "complicated and confusing for individuals and plan sponsors," the letter states, and the relief would not be available as "uniformly" to taxpayers as the change passed by Congress for 2009. That's because most seniors already have taken their 2008 payouts.
Amidst the bad news concerning 2008, Kiplinger.com
isn't ready to encourage retirees to go back to work just yet. The financial site still believes senior citizens should hold out hope for some level of financial relief:
We expect the Treasury Department to grant some kind of relief, probably within the next week or so. So if you haven't taken your 2008 distribution yet, keep procrastinating.
Stay tuned
well let you know if the Treasury offers any support in the coming days.
In the meantime, tell us your take on the moratorium. Is it just another shot in the dark by Congress or a move that will help support our seniors?
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