Correction to This Article
The article about the presidential candidates' proposals on retirement savings misstated the release date of a survey of workers by the Transamerica Center for Retirement Studies. It was released in February, not on Oct. 9.

The Candidates and Your Savings

By Annys Shin
Washington Post Staff Writer
Sunday, October 19, 2008

With consumers snapping their wallets shut, the Dow taking regular nosedives and the government shoring up much of the financial system, both presidential candidates this past week talked up their ideas for helping financially strapped workers and retirees get through an economic downturn. Their plans differ in several key respects, but they essentially make it easier to do one thing: draw down your retirement savings.

Anyone with a 401(k) account can take money out now without penalty for specific reasons: to purchase a primary residence or to pay medical, college tuition, foreclosure or funeral costs. And those 59 and older can make withdrawals for any reason without penalty. No matter how old you are, you can also borrow against your 401(k) up to $50,000 or half of the balance, whichever is less, as long as you pay it back in 5 years.

But hardship withdrawals and 401(k) loans come with requirements. You can't make a hardship withdrawal unless you have already stopped contributing for six months. And loans have to be paid back, usually within 60 days, if you leave the employer that sponsored the account. So the candidates want to make things a little easier, at least temporarily.

The one proposal they agree on is suspending required withdrawals from retirement accounts, which kick in when you turn 70 1/2 . You have to withdraw a minimum amount based on the value of your account and the life expectancy of you and your beneficiary, every year for the rest of your life.

Seniors facing mandatory withdrawals are in a jam this year because the required amount is based on the value of their holdings as of last December -- before the market tanked.

"Delaying that does make some sense to help people dramatically hit by changes in the market," said David Certner, legislative policy director for AARP.

That's where the agreement ends. Sen. Barack Obama (D-Ill.) has proposed allowing people under 59 to withdraw up to 15 percent of their IRAs or 401(k) accounts, up to a maximum of $10,000, without having to pay the 10 percent penalty for withdrawing early, though income tax still applies. The penalty waiver is good only on withdrawals made in 2008 and in 2009.

Obama also wants to exempt from taxation the withdrawals required by seniors 70 1/2 and older.

Sen. John McCain (R-Ariz.) has proposed taxing withdrawals from IRAs and 401(k) accounts in 2009 and 2010 by those 59 and older at a 10 percent rate. Currently, such withdrawals are taxed up to 35 percent, depending on income. The proposed 10 percent rate would apply to the first $50,000 withdrawn in 2009 and 2010.

McCain said he would also slash the capital gains tax rate from 15 to 7.5 percent for two years on stocks purchased and held for more than a year, and he would increase the amount of losses from stock sales that people could deduct from their taxes to $15,000 from $3,000.

"Retirees have suffered enough and need relief, and the surest relief is to let them keep more of their own savings," McCain said in a speech on Tuesday.

Each candidate has criticized the other's plan. Obama said McCain's proposal doesn't help working families, disproportionately benefits wealthy seniors and will mean a loss of at least $36 billion in tax revenue. McCain called Obama's plan destabilizing, saying that letting people withdraw early is "an invitation to capital flight . . . at a moment when the opposite is needed."

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