Posted on 01 March 2012
By Mark Miller
Talk about an easy lay-up shot. Buried in President Obama’s 2013 budget is a proposed tax break that would make retirement easier to manage for half of America’s seniors – at very low cost to government coffers.
The administration proposes exempting seniors from the rules requiring them to take distributions from tax-deferred retirement accounts starting at age 70½, so long as their total balances don’t exceed $75,000. The exemption would benefit fully half of the owners over that age of IRA, 401(k) and other tax-deferred accounts from the required minimum distribution (RMD) rules.
Distributions from these accounts are taxed as ordinary income in the year of withdrawal. The proposal would simplify tax compliance for seniors – a significant benefit, since failure to comply with RMD rules triggers a 50 percent penalty on whatever funds should have been withdrawn in a given year.
The change also would give seniors greater flexibility in determining when to draw down their savings. Some would be able to delay withdrawals, allowing their accounts to stay invested and continue to grow.