US Lawmakers Vote To Suspend Unfair Tax On Seniors

by Leroy Baker, Tax-News.com, New York

16 December 2008

The US House of Representatives has approved legislation that would temporarily suspend an excise tax which is assessed on seniors who fail to take a required minimum distribution (RMD) from their retirement accounts.

The bill would waive the penalty on RMD for 2009 on accounts including Individual Retirement Accounts (IRA), 401(k)s, and 403(b)s, thereby allowing seniors to recoup some of the losses they have experienced as the stock market plummeted.

Under the Worker, Retiree and Employer Recovery Act (HR 7327), all taxpayers, including those who usually take the required minimum distribution amount monthly and those who take a lump sum amount at the end of the year, would have equal treatment. Under current law, individuals who have reached age 70½ must take an annual required minimum amount from their retirement plan or IRA. Failure to take the distribution would subject the individual to a 50% excise tax penalty of the amount that should have been withdrawn.

“This relief will help workers and seniors safeguard their retirement savings during the economic crisis,” said House Ways and Means Committee Chairman Charles Rangel (D-NY). “Every segment of our economy is experiencing financial pain and this bipartisan legislation will go a long way to help employers do the right thing for their workers even in these difficult economic times.”

“Americans have seen trillions of dollars evaporate from their retirement accounts over the last few months as a result of our economic crisis,” added US Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee. “I’m glad that Congress worked swiftly, and in a bipartisan way, to provide important relief to seniors who may face a steep tax if they do not make a withdrawal from their depleted retirement accounts.”

“The minimum distribution rules are especially burdensome in the face of sharp financial market declines; suspending these rules for 2009 will provide some much-needed relief to senior citizens, and I hope the Senate is able to act quickly on this measure,” commented Rep. Jim McCrery (R-LA), the senior Republican on the Ways and Means Committee.

In addition, the bill would ease funding requirements for employer-sponsored pension plans that would be forced to make significantly increased contributions during these economic difficult times when they are very short on cash. The bill includes temporary funding relief for multi-employer plans that have been negatively impacted in the economic downturn. The bill would also make nominal technical corrections to the Pension Protection Act of 2006.

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