One thing that would help save people's savings

I just found this proposal that McCain made over a month ago during his campaign but have not seen any response from anyone. ---BBB

McCain makes new 401k proposal
Source: CNN

(CNN) " John McCain proposed suspending the requirement that investors begin dissolving their IRAs and 401Ks soon after age 70, his second major economic proposal of the week.

"We must also protect investors ­ especially those relying on their investments for retirement," McCain told the crowd at a campaign event in La Crosse, Wisconsin Friday.

"Current rules mandate that investors must begin to sell off their IRAs and 401Ks when they reach age 70 and one half. To spare investors from being forced to sell their stocks at just the time when the market is hurting the most, those rules should be suspended."

Reporters did not get advance warning of McCain¹s announcement, which was not immediately accompanied by any further details from the campaign.

Because the purpose of IRAs and employer-sponsored retirement plans is to help people save for retirement, Congress set up the tax laws to make sure that people didn't use them solely for other purposes, such as building a nest egg to pass on to their heirs. While Congress was willing to give savers a tax incentive to contribute to their retirement accounts, it also wanted to make sure that the money in those accounts would be subject to tax at some point in the future. The required minimum distribution, or RMD, rules make sure that people actually take out some of the money in their retirement plans after retirement.

dys- I hear what you are saying, and I understand the government's intent, but there could be a very simple fix. If a person does not take out his RMD, and there is money left over upon the death of the owner of the funds, why not have a special tax on that money?

BBB- I am sooo glad that all of my (and Mr. P.'s )IRAs are in CDs. Whew!

I think that Obama should take McCain's advice about suspending the RMDs.

In July, I revised my investements to have nearly 60% in CDs. My stock portions are taking the big hits.

BBB

Required IRA withdrawal under attack
Personal Finance by Kathy Kristoff
Tucson, Arizona | Published: 11.16.2008

The shaky economy and plunging stock market are leading many Americans to cut back on their spending. If you're retired, you might also be inclined to pull less money out of your retirement account. But efforts to preserve as much of your depleted nest egg as possible could be thwarted by the Internal Revenue Service.

If you're older than 70 1/2, IRS rules require you each year to take a minimum amount of assets out of your traditional individual retirement account or 401(k) plan. (The rules don't apply to Roth IRAs.)

Worse, the calculation of how much you need to withdraw this year is based on the value of your account at the end of 2007. Because stock prices have plunged, your account is probably worth much less than at the end of last year. So the mandatory withdrawal based on how much your nest egg was worth about 10 months ago might seem excessive given its current depressed value.

As a result, there has been a chorus of calls to suspend the rules. President-elect Barack Obama and Sen. John McCain both endorsed such a move during the campaign.

How much money are we talking about?

Let's say you're 72 years old and your retirement assets have plunged 40 percent, from $500,000 on Dec. 31 to $300,000 today. Under existing rules, you would have to withdraw $19,531. If your minimum withdrawal was calculated using today's account value instead, you would have to take out only $11,719.

Of course, if you withdraw more than you need you don't have to spend it all. You can put the money in a taxable investment account. But you'll have to pay income tax on the amount you withdraw, so you'll have less to invest.
And you can always take out more than the mandatory amount. The IRS simply sets minimums because the government wants you to pay tax on this tax-deferred money before you die. In fact, the minimum is calculated by dividing your retirement account value by your life expectancy in years remaining, based on IRS data.

What happens if you don't withdraw the minimum?

You'll "get hit with a killer penalty" equal to 50 percent of the amount that you should have withdrawn but didn't, said Ed Slott, a tax accountant and author of "Your Complete Retirement Planning Road Map."

The Congressional Research Service estimates that 5.5 million households will be subject to mandatory withdrawal rules this year. If that includes you " and you don't want to withdraw as much as you're currently required to this year " here is some advice:

Hold off

Lawmakers and the Treasury Department are discussing whether a change in the IRS rule can be done administratively or requires Congress to act. If legislation is needed, it might not be passed before year-end.

If you haven't taken your full withdrawal, which the IRS calls a distribution, for this year, there's no reason to rush. Once you make a withdrawal from a retirement plan, the amount taken out is taxable.

Pay attention, of course, because if nothing changes in the next six weeks or so, you'll want to make the withdrawal before the holiday season, when vacations and short staffing can make dealing with your broker or money manager less convenient and more error-prone.
Withdraw "in kind"

If you're concerned that the required withdrawal will force you to sell stocks at their current low prices, you can comply with the rule without selling anything. Instead, you can withdraw your assets " stocks, bonds or mutual funds " "in kind." That means your broker or fund company will take the assets out of your retirement account and transfer them into a taxable account without selling them. You'll need to call the institution where you have your retirement account to set up an in-kind transfer.

Keep records

If you take an in-kind distribution, you need to keep records showing the value of the securities that were transferred at the time they were transferred. The reason: This amount becomes your cost of acquiring those assets when you calculate any capital gain or loss when you eventually sell them. Too often, taxpayers forget that and pay dearly for it.

"The natural inclination is to look at what you paid for the stock when you first bought it," Slott said. "But that was when it was in the IRA. It's only the appreciation that you earn after the distribution that's going to be taxable when you sell."

Let's say you bought stock in your IRA for $2 a share in 1980. If that stock now is worth $10 a share and you transfer it into a taxable account as part of your minimum withdrawal, you would pay regular income tax on the full amount " $10 a share " as with any IRA withdrawal.

If you later sell the stock for $15, you pay tax on just the $5 capital gain since the shares were transferred, not the $13 that the stock had appreciated since you first bought it.

Offset gains

The main problem with taking in-kind distributions is that they leave you short of cash to pay the tax on the funds distributed. Because retirement plan distributions are considered ordinary income rather than capital gains, there is often little you can do to offset that income.

But this year, your taxable investment accounts are likely to have more losses than gains. You can use as much as $3,000 of your net capital losses to reduce the amount of your ordinary income, such as an IRA withdrawal, that is taxed.

HOORAH! The Congress agreed with my request to temporarily suspend the requirements that seniors 70-1/2 and older are required to take a minimum distribution every year from their traditional Ira. That's hurt many retirees this year who have had to sell stocks at a time of deep losses.

The Congress recently stepped in and proided some aid by passing legislation this month that suspends the Required Minimum Distribution, or RMD, for 2009.

This also helps those who have inherited an IRA and have had to sell their investment at a younger age.

The relief act is expected to by signed into law by President-elect Barack Obama when he takes office on 1/20/09.

Nice, this was a no-brainer. I know of many people who were going to get screwed if they had to pull out their retirement money at current market values.