Washington (Sept. 25, 2002) -- A new Joint Economic Committee study shows that mandatory withdrawals from retirement plans in a falling stock market will force millions of seniors to reduce their IRA and 401(k) holdings much faster than expected or be faced with a prohibitive 50 percent excise tax on their retirement plan assets.
"This new study explains a major threat to seniors' retirement security this year unless changes are made in federal tax law," JEC chairman Jim Saxton said. "This year the problem may be disastrous for many seniors."
"The IRS withdrawal formula is rooted in the market value of retirement assets at the end of the prior year, for example, 2001. If the stock market then falls, and the value of retirement assets is reduced by one-third or one half, this does not reduce the amount that must be withdrawn to avoid the 50 percent excise tax. The result is that retirement plan assets are depleted much faster by higher taxes, and the return on the withdrawn assets are now exposed to Federal taxes since they are outside the plan.
"I have proposed legislation for many years to address this counterproductive and discriminatory tax by repealing mandatory withdrawals on IRAs and rolled over 401(k)s. While I still think this is the best solution, the study also analyzes a range of other options available, most of which would at least shield millions of seniors from the calamity that faces them in tax year 2002," Saxton concluded.
-- Electronic Accountant Newswire staff
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