The Internal Revenue Service has adopted a Scrooge-like attitude for the holiday season, deciding not to give a break to retirees who must withdraw funds from tax-deferred accounts.
No relief will be granted to Americans ages 70 1/2 and older who are required to make minimum withdrawals from their retirement plans. The IRS said administrative changes for 2008 would be confusing and complicated for both individual taxpayers and retirement plan sponsors, Forbes.com reported. The Treasury also said that relief this year would not be uniform for older Americans because many seniors had already made the withdrawals.
For weeks, people had been speculating that help might be on the way because the stock market had blown a hole in the financial portfolios of many older citizens. Both Barack Obama and John McCain backed this type of relief during the presidential election and Congress has passed legislation lifting the required withdrawals for 2009, Kiplinger.com reported under a headline declaring "Treasury to Seniors: Drop Dead."
"This will be very upsetting for taxpayers forced to sell in a down market or to take more out of their tax-preferred accounts and transfer them now into taxable accounts," Clint Stretch, managing principal of tax policy at Deloitte & Touche LLP, told Forbes.com.
People who were taking a wait-and-see position are now advised to contact their broker or fund company as soon as possible.
The major problem for senior citizens is how much money they need to withdraw this year is calculated based on how much their retirement account was worth at the end of 2007. Failure to withdraw the money by the end of the year could result in a penalty of 50 percent of the required minimum distribution.
Don't rush on mandatory withdrawals from retirement accounts