The call last week came from U.S. Representative George Miller (D-California), chairman of the House Education and Labor Committee, and Representative Rob Andrews (D-New Jersey), chairman of the Subcommittee on Health, Employment, Labor and Pensions. Miller and Andrews made the call in a letter to Treasury Secretary Henry Paulson.
The call came just ahead of statements in support of the notion from both presidential candidates (See McCain, Obama Back Loosening RMD Rules ).
If seniors do not take out a minimum amount based on an Internal Revenue Service (IRS) formula every year after they reach 70Â½ years old, they are subject to a 50% penalty.
According to the statement , Andrews introduced on October 2 H.R. 7242 that would suspend the tax penalty for seniors who have saved less than $200,000 in their retirement accounts.
At a recent Education and Labor Committee hearing this week on the impact of the financial crisis on retirement security, the Congressional Budget Office found that $2 trillion has disappeared from Americans’ retirement plans over the past 15 months (see Congress Considers Market Impact on Retirement Security ) .
Text of the letter to Secretary Paulsen
October 10, 2008
The Honorable Henry M. Paulson, Jr.
Department of the Treasury
1500 Pennsylvania Avenue, NW
, DC 20220
Dear Secretary Paulson:
As a further step to address the current financial crisis, we request that you take immediate action to help senior citizens preserve their retirement investments. Specifically, we request that you suspend the required minimum distribution (RMD) and the tax penalty for retirement account holders who are 70 years or older who might not want to withdraw from their retirement accounts during the current financial crisis.
As you know, seniors who fail to take the RMD have to pay a tax penalty equal to 50% of the amount that should have been distributed. Unless this provision is temporarily suspended, seniors will be doubly penalized by the current crisis – first by experiencing a dramatic drop in the value of their retirement account holdings and second by forcing them to sell a portion of those holdings at a steep loss.
American workers have lost $2 trillion in retirement savings over the past 15 months, according to the Congressional Budget Office. This estimate that underscores the fact that retirement security is one of the greatest casualties of the present crisis.
We believe that you have the legal authority to effectively eliminate this penalty by not requiring the RMD for 2008. Current law requires minimum distributions over the life of the retiree. However, the Treasury regulations interpret this as requiring annual distributions. By taking action, seniors will avoid taking unnecessary losses in their retirement accounts and avoid the current excise tax. We request that you take this action immediately to help protect and rebuild the retirement savings of older Americans.
ROBERT E. ANDREWS
Health, Employment, Labor, and Pensions