TaxAlmanac:Featured article/December 18, 2008

From TaxAlmanac

Worker, Retiree and Employer Recovery Act of 2008

Worker, Retiree and Employer Recovery Act of 2008

On December 11, 2008, Congress approved legislation that temporarily suspends an excise tax which is assessed on seniors who fail to take a required minimum distribution (RMD) from their retirement accounts including IRAs, 401(k)s, and 403(b)s. The bill waives the penalty on RMD for 2009, 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 (H.R. 7327), all taxpayers, 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 required an annual required minimum amount from their retirement plan or IRA. Failure to take the distribution would subject the individual to a 50-percent excise tax penalty of the amount that should have been withdrawn.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 Ways and Means Committee Chairman Charles B. 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,” said U.S. 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.”