Retirees will be allowed to defer taking withdrawals from 401(k), 403(b) plans and individual retirement accounts (IRAs) during 2009, thus avoiding taking losses on the 50 percent collapse in stock prices since October.
Normally, retirees must withdraw minimum amounts money after reaching 70½ and pay taxes on those withdrawals as income, since such accounts are tax-deferred. The IRS penalty, not including the additional tax hit, would equal half the money withdrawn.
The bill also temporarily eases funding requirements for corporate pensions, a measure designed to allow cash-strapped companies delay putting money into those funds while they struggle to stay afloat.
The Senate on Thursday evening approved the bill and now it goes to President George W. Bush for his signature. The White House has some problems with the pension-fund portion of the bill, a spokesman said.
The law is in place to avoid permanent tax avoidance by retirees who might have other means to live once they quit earning.
The IRS rule also keeps seniors from simply rolling deferred retirement accounts on to their heirs.
The current bill does not stop IRS penalties on withdrawals taken during 2008, but there is a chance a Treasury provision to backdate the rule might be included later.
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