AARP Urges Treasury to Issue an Immediate, Temporary Freeze on Mandatory Retirement Account Withdrawals
Source: AARP Press Center
AARP Urges Treasury to Issue an Immediate, Temporary Freeze on Mandatory Retirement Account Withdrawals
WASHINGTON— AARP CEO Bill Novelli today sent a letter to Treasury Secretary Paulson urging him to take immediate action to temporarily freeze mandatory retirement account withdrawals.
Currently, Americans aged 70 ½ and over are required to take distributions from their retirement accounts based on the fair market value of their account on the last day of the previous year. Given the overall decline in the stock market, this could force older Americans to make a choice between taking a withdrawal that was calculated based on much higher values in retirement accounts or facing a high tax penalty. Making minimum withdrawals optional rather than mandatory for this year beginning immediately would help give older Americans some much needed financial flexibility as they struggle to manage their finances during this difficult economic time.
Excerpts from Novelli’s letter to Secretary Paulson follow:
“The sudden decline in the economy and plunging stock markets has jeopardized the retirement savings of millions of retired workers. 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.
“Given the impending December mandatory retirement distribution deadline, we urge you to act quickly to exercise your authority and implement an immediate, temporary freeze on mandatory retirement account withdrawals. We also urge you to provide immediate relief for retirees who do not have the option to delay withdrawals and who find it necessary in these difficult economic times to withdraw funds from retirement accounts to meet daily living expenses.
“We believe that fairness dictates that we provide relief for these individuals who have no other recourse than to use their retirement savings to meet current living expenses.”
A complete copy of Novelli’s letter follows. For more information, contact AARP Media Relations.
Dear Mr. Secretary:
Thank you for meeting with the AARP Board of Directors recently to discuss the work you are doing to stabilize the financial markets and improve the economic outlook. The members of the Board were impressed with your candor and dedication.
I would like to follow up on one particular issue raised at that meeting – the issue of minimum required distributions (MRD) from retirement accounts. As you know, under current law, individuals must begin to withdraw certain minimum amounts every year from their IRAs and 401(k) accounts when they reach age 70 ½ based on the fair market value of the account on the last day of the previous year. Failure to take a required distribution by December 31 of this year results in a tax penalty equal to 50 percent of the amount of the distribution.
Given the current state of the economy and the stock markets, this means that many older account holders will be required to take a larger than anticipated withdrawal (based on the fair market value of the account on December 31, 2007) at a time when their investments have suffered substantial losses as measured by the various indices. The Dow Jones Wilshire 5000 Index, for example, closed at 8,502.40 on October 27, 2008. This level represents a 45 percent decline from the stock market peak that occurred on October 9, 2007. This index is now at the same level it was in July of 1997.
The sudden decline in the economy and plunging stock markets has jeopardized the retirement savings of millions of retired workers. 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. Given the impending December MRD deadline, we urge you to act quickly to exercise your authority and implement an immediate, temporary freeze on mandatory retirement account withdrawals. We also urge you to provide immediate relief for retirees who do not have the option to delay withdrawals and who find it necessary in these difficult economic times to withdraw funds from retirement accounts to meet daily living expenses. We believe that fairness dictates that we provide relief for these individuals who have no other recourse than to use their retirement savings to meet current living expenses.
AARP commends you on your leadership in dealing with the current financial crisis, and urges you to take the necessary step to also bring relief to those who have suffered heavy personal losses. We support your efforts to stabilize the financial markets and improve the economic outlook of both individuals and the nation. Working together, we can better ensure the financial security of Americans of all ages.
Sincerely,
William D. Novelli
Chief Executive Officer
