Lawmakers Call for End of RMD Penalty

Two Congressional lawmakers have formally called on the Treasury Department to suspend the tax penalty for taxpayers who do not take the minimum required distribution from their 401(k)s.

The call came from U.S. Representative George Miller (D-California), chairman of the House Education and Labor Committee, and Representative Rob Andrews (D-New Jersey), chairman of the Subcommittee on Health, Employment, Labor and Pensions. Miller and Andrews made the call in a letter to Treasury Secretary Henry Paulson.

The assertions from Miller and Andrews echo claims from both presidential candidates on the campaign trail (see “McCain, Obama Back Loosening RMD Rules).

If seniors do not take out a minimum amount based on an Internal Revenue Service (IRS) formula every year after they reach 70세 years old, they are subject to a 50% penalty.

According to the statement, Andrews introduced on October 2 H.R. 7242 that would suspend the tax penalty for seniors who have saved less than $200,000 in their retirement accounts.

At a recent Education and Labor Committee hearing this week on the impact of the financial crisis on retirement security, the Congressional Budget Office found that $2 trillion has disappeared from Americans’ retirement plans over the past 15 months (see Lawmakers Call for End of RMD Penalty).

More information about the Paulson letter is available here.