WASHINGTON, DC – President Bush signed bipartisan legislation today to temporarily suspend the Required Minimum Distribution (RMD), a tax penalty for seniors who do not take a minimum withdrawal from their depleted retirement accounts, such as 401(k)s.

 
Last month, Congressman John Sarbanes sent a letter to the Secretary of the Treasury, Henry M. Paulson, strongly urging him to provide a temporary waiver on mandatory minimum distributions for retirement accounts. Because the Treasury Department failed to act in a timely way, the Congress passed H.R. 7327, the Worker, Retiree and Employer Recovery Act, which would allow seniors to avoid the RMD without penalty through the end of next year.

“By suspending these required withdrawals, seniors who are in a position to weather the current market volatility will avoid taking unnecessary losses in their retirement savings,” said Congressman Sarbanes. To read the letter Congressman Sarbanes submitted to Secretary Paulson click here.

The Worker, Retiree and Employer Recovery Act suspends an Internal Revenue Service requirement for one year that account holders of 401(k)-style plans must withdraw a minimum amount of money every year after they reach 70 ½ years old.  This suspension would be available to everyone regardless of their retirement account balances.

Current regulations require account holders of 401(k) accounts to withdraw a minimum amount of money every year after they reach 70 ½ years old. If seniors do not take out a minimum amount based on an Internal Revenue Service formula, they are subject to a 50 percent penalty. For instance, if an individual fails to withdraw $4,000, they would be assessed a $2,000 tax the next year.