Don't rush on mandatory withdrawals from retirement accounts

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Some relief might be on the way for senior citizens required to take minimum withdrawals from their individual retirement accounts at a time when the stock market has blown a hole in their financial portfolios.

The Wall Street Journal is reporting that government officials are considering possible changes to the rules that require millions of Americans to start minimum withdrawals at age 70 1/2. Possible options include delaying the withdrawals or reducing the amount of the withdrawals. They are also considering some form of tax relief for people who have already made the required payments for this year.

If you have not already paid your required minimum amount, you should wait a little longer, Clint Stretch, managing principal for tax policy at Deloitte & Touche LLP in Washington told The Wall Street Journal. This seems to be a popular recommendation as many accounting experts have been telling the media that there is no reason for older Americans to rush to make the withdrawals.

One major problem is how much money you need to withdraw this year is calculated based on how much your retirement account was worth at the end of 2007. For example, The Mercury News reported that if you are 72 years old and your assets are worth 40 percent less than they were a year ago, from $500,000 to $300,000, you would still have to withdraw $19,531. But calculated at today's value, you would only have to take out $11,719.

For anyone wondering what might happen if you don't withdraw the minimum, the penalty is equal to 50 percent of the amount you should have taken out.

The American Association of Retired Persons (AARP), which represents nearly 40 million Americans age 50 and older, has urged Treasury Secretary Henry Paulson to use his influence to get Congress to act to suspend on the requirement.

"The sudden decline in the economy and plunging stock markets has jeopardized the retirement savings of millions of retired workers," Bill Novelli, AARP's chief executive, said in a letter to Paulson. "In addition to steps that are already being taken to stabilize the financial markets, we believe it is also critical to help stabilize individual finances."

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