海角大神

Earlier this year, the Obama Administration proposed a small and almost unnoticed change in retirement savings rules that could be a big help to middle-income seniors who want to preserve assets to pay for medical and long-term care costs in very old age.

The proposal would exempt those who have $100,000 or less in retirement savings from having to take required taxable distributions from 401(k)s, IRAs, and the like starting at age 70 陆. Under current Minimum Required Distribution (MRD) rules, those with modest savings are effectively forced by the government to draw down their assets. 聽And that leaves them with less money when they may really need it in their 80s and 90s.

罢丑别听聽are in place to make sure that those with large retirement balances pay some tax on their accounts. And the easiest way is for the government to require taxable distributions once someone reaches a certain age.

But for the three-quarters of retirees whose accounts are smaller than $100,000, these rules create a serious problem: 聽After 20 years of making required distributions, a typical $100,000 account would shrink in value by about one-third (even before figuring inflation). And many moderate-income retirees won鈥檛 have funds when they most need them. 聽They don鈥檛 have to spend their distributions, of course, but I suspect that nearly all of these small savers do.

Already, these seniors are at serious risk of outliving their assets: On average, you should put aside about $100,000 at age 65 just to pay for medical care in old age, and another $60,000 to pay for聽. 聽Plus, you need money for everyday expenses such as rent, transportation, utilities, and food. Social Security benefits will cover some of those expenses but, for most people, not all.

The Obama proposal, which was buried in last February鈥檚 budget, would exempt those with $100,000 or less in traditional retirement plans from having to make minimum required taxable withdrawals at all. Of course, they always could take out funds if they needed to (and would owe tax on the distribution) but they would not have to. If you want to look at the plan, it鈥檚 in Treasury鈥檚 description of Administration tax proposals () on page 143.

The idea is a very nice follow-up to rules Treasury adopted a year ago that would allow retirees to avoid the MRD tax on up to $125,000 of retirement savings they convert 聽into. These insurance plans cost relatively little but don鈥檛 begin to pay off until a purchaser reaches the age of 80 or 85.

Such annuities聽, but only for those with substantial savings (a general rule of thumb is that nobody should put more than one-third of their financial assets into an annuity). They won鈥檛 help a retiree with less than $100,000 in a 401(k). That鈥檚 why the proposed rule exempting her from the MRD distribution makes so much sense.

The idea is not without controversy. A related White House proposal would, for the first time, require taxable distributions at 70 陆 for Roth IRAs (though, like traditional accounts, those smaller than $100,000 would remain exempt). And some critics say that $100,000 ceiling is too low, and prefer to exempt even bigger retirement accounts from the distribution rules. But those are details that Congress can work out.

So far, Obama鈥檚 proposal has been completely ignored on Capitol Hill鈥攁long with the rest of his fiscal plan. That鈥檚 a mistake. Republicans as well as Democrats should consider the idea, which could help middle-income retirees preserve their hard-earned savings for a time when they really need it.

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