Tuesday, January 6, 2009

Us old folk and WRERA

Pension fund bill aims to give relief to employers, retirees

It's a balancing act to design legislation to help retirees deal with plummeting pension fund values while easing the strain on companies that feed into those funds.

Congress' stab at the issue was the Worker, Retiree and Employer Recovery Act, signed by the president Dec. 23, that does some of that for some of those seeking relief from the market's collapse.

What it does : Allows pension funds to smooth gains and losses over a two-year period and eases requirements for reaching contribution targets under the Pension Protection Act.

What else : For retirees 70.5 years and older, the law suspends minimum withdrawal requirements for 2009 from their tax-deferred retirement accounts.

Who will benefit : An estimated 20 percent of U.S. companies that have traditional pension plans.

Who else : People over 70.

clipped from taxlaw.sprouselaw.com
The Act should help give older Americans some much needed financial flexibility as they struggle to manage their finances during this difficult economic time.

A key provision in the Act is designed to help alleviate the financial burden facing seniors who have seen their retirement savings shrink dramatically.

The new provision provides relief to senior citizens by allowing them to continue to keep money in retirement accounts that they are typically required by law to withdraw once they reach age 70 1/2.

Generally, individuals with retirement accounts must make required withdrawals based on the size of their account and their age every year after age 70 1/2.

This rule is intended to prevent wealthy individuals from using retirement accounts as a tax shelter. Any individual who fails to take a required minimum distribution (RMD) is heavily penalized with taxes equal to 50% of the amount not withdrawn.

The Act suspends the required minimum distribution from retirement accounts in 2009. This waiver, which is available to everyone regardless of their total retirement account balances, applies to all defined-contribution plans, including 401(k), 403(b), 457(b), and IRA accounts.

Suspending the mandatory withdrawal allows retirees to keep the money in their account if they choose, and possibly recover some of their losses.
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