Feds Rethink Rules on Retirement Savings
Among the possible changes: allowing taxpayers to delay taking required withdrawals from their individual retirement accounts, 401(k) plans and other similar accounts this year — or at least reducing the amount that must be withdrawn. Also under consideration are various ways to provide tax relief for people who already have made their required withdrawals for this year.
This is silly. Everyone in the situation of having to make a withdrawal has know about the requirement for years. My guess is this has been the law for over 20 years. Yes, the stock market is down. Yes, being forced to sell now would be bad. And how does providing “tax relief” to those who already made required withdrawals make any sense? Why not just have the treasury send checks to every American, who had a loss on an investment this year, equal to the amount of their loss? (By the way this is sarcasm – they should not really do that). These people have lost any sense of what investing, planning, responsibly… are.
First, knowing you have required withdrawals from your IRA, you should not hold those assets in stock (I suppose you could have significant cash assets outside your IRA and chose to just use the next option). Second, you can buy the stock outside your IRA at the same minute you sell them in the IRA. What is the big deal: the cost should be about $20 in stock commission for each stock – you save that much each time you fill up your gas tank lately (compared to prices this summer). All that not having to withdraw funds does is let those wealthy enough not to need a small amount of their IRA or 401(k) savings by the time they are 70 1/2 to keep deferring taxes on their investment gains.
Therein lies one of the major problems. This year’s distributions are based on Dec. 31, 2007, levels — a time when market prices generally were far above today’s deeply depressed values. As a result, “millions of Americans are forced to withdraw larger-than-anticipated amounts from already-depleted retirement funds,” says David Certner, legislative policy director at AARP, an advocacy group that represents nearly 40 million older Americans.
What kind of 1984 newspeak is this? I mean this is absolutely ridicules. You have to withdraw the exact amount you knew on January 1st 2008. Nothing about that has changed in almost a year. How can the Wall Street Journal report this without pointing out the completely false claim.
Ok, this has some truth for some seniors (their retirement saving losses are significant). And for a group to disproportionately experience the losses do you know what that means? Well with a little bit of math understanding you would know that means: they own more investments than others do. That is how you have larger losses – you own more. So please extend the tax deferral to us even longer because we are richer than everyone else and the stock market decline therefore cost us more. Seems like a weak argument to me.
Not many of those with real issues are likely worry about forced IRA withdrawals. If you don’t have the luxury to wait, what is the benefit of letting you wait? You just said they can’t in your definition. If they have to sell because they can’t wait, because they need to use the money for current expenses, they can’t leave the money in their IRA, right?
Those who can leave their money in their IRA are people like Warren Buffett, who have excess retirement savings they don’t need to access. So why exactly do they need the extra advantage of additional tax deferral? It is amazing how greedy everyone gets trying to win special favors from congress for themselves.
The losses to retirement savings have been real, and large. The crazy claims people are reporting that are not even logically consistent however need to be challenged. It is such fuzzy thinking that gets us into such messes as the credit crisis in the first place: How Not to Convert Equity or How to Create a Credit Crisis.
I think IRAs and 401(k)s are a good public policy mechanism to encourage retirement savings. But you can’t let special interest groups just abuse the system with senseless claims. You can make more sensible arguments for the same policy but I can’t think of any argument that is even remotely close to reasonable. This is just lobbyist trying to get rich clients a way to delay paying taxes. Not a new tactic but not one we should support: Lobbyists Keep Tax Off Billion Dollar Private Equities Deals and On For Our Grandchildren.
What is this “large, onerous minimum withdrawal requirement”? If you are 70 it is 1/27.4 (if you are single or your spouse is not more than 10 years younger than you) that is 3.6% of your IRA assets as of December 31st of last year. So if you have $400,000 you would have to withdraw $14,400. Does anyone believe this is some catastrophe that congress needs to address? If so, please explain your reasoning to me, I don’t see it at all. This rate is based on IRS actuarial tables so as you age larger withdrawals are required. By age 80 you must withdraw 5.3%.
Related: Spending Guidelines in Retirement – 401k’s are a Great Investment Option – Boomers Face Retirement – Fed Continues Wall Street Welfare – Estate Tax Repeal