If you contribute to a traditional IRA or a 401(k), you know that the money you put into your account goes in tax-free. But when you reach the magic age of 70 1/2, the government requires you to pull money out of your account annually and to pay taxes on the disbursement. These "minimum distribution rules" apply even if you don't really need the cash.
The rule has a practical benefit. By requiring account holders to take a distribution, we ensure that the mega-rich can't just sock away savings, tax-free, to pass along to their heirs. But the withdrawals have another effect. They force retirees to draw down their accounts -- in many cases, by selling stock -- even when the market takes a bearish turn.
In late 2008, Congress decided to suspend these mandatory distribution rules for the 2009 tax year. In theory, the move would give folks a chance to leave their nest eggs alone for a year so that the underlying investments could recover some of their value.
But it's going to take more than a year for those investments to get back to where they were before the fall. According to InvesTech Research, the average trough-to-peak recovery period after a bear market is 3.3 years.
We should extend the moratorium on mandatory disbursements for another three years -- until the end of tax year 2012 -- so that our retirees don't have to take forced losses on their IRAs and 401(k)'s.
Submit your ideas to: chad@chadmcgowan.com.
The rule has a practical benefit. By requiring account holders to take a distribution, we ensure that the mega-rich can't just sock away savings, tax-free, to pass along to their heirs. But the withdrawals have another effect. They force retirees to draw down their accounts -- in many cases, by selling stock -- even when the market takes a bearish turn.
In late 2008, Congress decided to suspend these mandatory distribution rules for the 2009 tax year. In theory, the move would give folks a chance to leave their nest eggs alone for a year so that the underlying investments could recover some of their value.
But it's going to take more than a year for those investments to get back to where they were before the fall. According to InvesTech Research, the average trough-to-peak recovery period after a bear market is 3.3 years.
We should extend the moratorium on mandatory disbursements for another three years -- until the end of tax year 2012 -- so that our retirees don't have to take forced losses on their IRAs and 401(k)'s.
Submit your ideas to: chad@chadmcgowan.com.
