Obama proposals include retirement plan changes
Referencing the article By David Pitt, AP Business Writer
We have gotten fervent feedback to our recent articles about the changes to your 401k, 403b, 457, and IRA accounts that may change under the Barack Obama Presidency. eRollover is striving to keep you up to date on these possible changes. I am actually referencing an article by David Pitt to delve a little bit further into possible 401k and retirement changes. The original article can be found here.
Retirement initiatives among economic priorities in Obama administration
The election is over and the message is clear -- the economy is priority one. The big question now is how some of President-elect Barack Obama's campaign proposals will affect retirees and workers with 401(k) and other retirement accounts. Looking at them a bit closer may reveal some clues.
Q: What are some of the ideas Obama has proposed that could impact my retirement planning?
A: One issue Obama has endorsed may get serious consideration before he takes the oath of office in January.
Obama proposed a temporary suspension of the required minimum distribution rule, which forces tens of millions of retirees to take money out of their IRA and 401(k) accounts once they turn 70 1/2. The rule is designed to give the government its share of the taxes on the money, which has been accumulating tax free. Failure to take out the money results in a 50 percent penalty assessed by the IRS.
Suspending the mandatory withdrawal would allow people to keep the money in the account and possibly recover some of their losses when the market recovers.
Obama's plan would temporarily waive the penalties and taxes on withdrawals made after age 70 1/2. There's interest in Congress to get it done -- sooner rather than later.
The chairman of the House Committee on Education and Labor, Rep. George Miller, D-Calif., has asked Treasury Secretary Henry Paulson to suspend the tax penalty immediately.
AARP, the Washington-based group that represents 39 million people aged 50 and older, also has urged Paulson to take the action right away.
David Certner, the group's legislative policy director said the required withdrawals essentially force retirees to take money out of the market at the bottom, recording large losses, rather than letting them keep their money in the account to potentially recoup the losses when the market improves.
Department of Treasury spokesman Andrew DeSouza said Wednesday he had nothing to report on the issue and declined to comment further.
"There's absolutely no reason to force people to take out a larger share of their current account at the bottom of the market," said Monique Morrissey, an economist with the Washington-based Economic Policy Institute. "It doesn't make any sense at all."
A second proposal made by President-elect Obama would allow workers to make hardship withdrawals of up to 15 percent of their balance from individual retirement accounts or 401(k) plans this year and in 2009. A withdrawal of up to $10,000 would not be subject to the 10 percent early withdrawal penalty charged by the IRS, but normal income tax would be due.
Some economists believe too many 401(k) plans already are underfunded and too frequently tapped for loans or early withdrawals, and making such a change sends the wrong message.
"I know people are feeling pain, but if you raid the piggy bank every time there's market downturn or recession, you will not have enough left in the piggy bank for old age," Kra said.
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