“As a result of the current financial crisis, many senior citizens have lost significant value in their retirement investments,” Sarbanes, D-Md., wrote in a recent letter.
“If required to withdraw from their retirement accounts now, we are forcing seniors to realize these losses unnecessarily and potentially compromising their long term financial well being.”
Retirees who have reached 70 1/2 years old are required to take Required Minimum Distributions, or RMDs, from their retirement accounts, which includes 401(k)s and Individual Retirement Accounts, under U.S. tax code.
Retirees must take a percentage out of their accounts each year or be penalized 50 percent of what they should have taken out.
Sarbanes said if retirees are forced to do this now — while the market is down — they could see huge losses from their retirement savings.
“I’m delighted he’s doing this, because it’ll help the economy,” said Sharonlee Vogel, outgoing chairwoman of Howard County’s Commission on Aging, an advisory board to the county executive, County Council and the county’s Office on Aging.
“By forcing them to do [take out RMDs], you’re deflating their income and deflating the value of their investment.”
In his letter to the federal government, Sarbanes cited statistics from the Congressional Budget Office, which estimates that U.S. workers have lost $2 trillion in retirement savings during the past 15 months.
“By suspending this policy, seniors who are in a position to weather the current market volatility will avoid taking unnecessary losses in their retirement savings,” he said.
“The RMD also effectively forces out willing investors at a time when we are trying to stabilize our economy and stem the dangerous and disorderly flight from our markets that has occurred over the last few months.”
Meanwhile, U.S. Sen. Ben Cardin, D-Md., also remains committed to the cause. He co-sponsored The Worker, Retiree and Employer Recovery Act, which would place a one-year moratorium on RMDs from IRAs for 2009, said Susan Sullam, his communications director. The bill was introduced Thursday.
“American seniors should not be penalized for our nation’s economic downturn. Forcing seniors to take a loss on their investments just because they reached age 70 1/2, after they worked hard all their life to save for retirement, is simply unfair,” Cardin said in a statement Thursday.
“This bill will help secure seniors’ savings during such a volatile time for worldwide financial markets. It also will help reduce the real fear many retirees are feeling as they see their IRA balances go down and down further.”