By Nancy Trejos
Washington Post Staff Writer
Friday, December 19, 2008

The Treasury Department and Internal Revenue Service decided not to change a rule that requires seniors to withdraw money from their individual retirement accounts and 401(k) plans by the end of the year.

Retirees older than 70 1/2 have to take a required minimum distribution by Dec. 31 of each year or pay 50 percent of that minimum in taxes. The amount they must withdraw is a percentage based on the account's balance at the end of the previous year.

Because the stock market has dropped significantly from last year, retirees whose accounts are heavily invested in stocks are faced with having to take their required withdrawal after losing as much as 40 percent of their investments.

Congress last week swiftly approved a bill that would suspend the rule for 2009. President Bush is expected to sign it into law.

The bill's sponsors said they didn't include a provision for this year because they expected the Treasury and IRS to come up with a solution.

"We are disappointed that the Treasury Department declined to act to help those seniors forced to take withdrawals from their depleted retirement accounts," said Aaron Albright, press secretary for the House Education and Labor Committee. "Congress acted to provide relief for seniors in 2009 with the understanding that Treasury was actively working on a solution for this tax year."

In a letter to Congress, Kevin I. Fromer, the Treasury's assistant secretary for legislative affairs, said "the scope of Treasury's ability to make administrative changes has constraints. Thus, any steps Treasury could take would be substantially more limited than the relief enacted by Congress and could not be made available uniformly to all individuals subject to required minimum distributions."

He also wrote that making any changes this year would be "complicated and confusing for individuals and plan sponsors."

Many seniors have already taken their required minimum distribution for this year. One of the main concerns with suspending the rule was the difficulty in determining how to deal with those who had already complied with it.

The AARP, which represents people 50 and older, had also pushed for some relief this year. Yesterday, David Certner, the group's legislative policy director, said it was disappointed with the decision.

But, he said, "we believe that the 2009 moratorium that was recently passed by Congress will help to ensure that older Americans who are faced with this distribution will receive some level of relief. We now call on the president to quickly sign this legislation, and give older Americans and employers greater flexibility to manage their finances during this uncertain economic time."