A bi-partisan Congress twice crafted laws specifically inviting well-heeled taxpayers to renege on the tax payback. For 2009, in a move that could only benefit the affluent, lawmakers suspended mandatory distributions. Any taxpayer who actually needed the distribution had no choice but to take it and pay taxes; those who didn’t need it took a pass and saved thousands, adding those thousands to the federal deficit. Earlier, in another deficit-hiking move, Congress allowed up to $100,000 per-year in retirement distributions to be signed over to private charities—denying the Treasury the taxes it had coming, and state and city treasuries as well.
Both laws rested on ultra-flimsy rationales, and both have lapsed. There’s plenty more that still needs fixing, starting with the mandatory distribution age itself. Who benefits, after all, from a tax payback that doesn’t even have to begin until 70 1/2? Uncle Sam doesn’t benefit. Those who count on retirement accounts to help them get along don’t benefit; they’re drawing down well before that. The only real beneficiaries are those who simply don’t need the money.
The same holds for the withdrawal formulas, which start out low and creep up ever so slowly. The formula that applies to most people calls for a starting minimum required distribution of under 3.7 percent. Twenty-five years later, at age 95, the required distribution is just 11.6 percent. While the formulas apply to all taxpayers, the benefits flow entirely to those in no need and no hurry.
Now let’s apply McCain’s “Country First” to retirement taxes. First, let’s move up the mandatory distribution age from 70 1/2 to 65: when it’s Medicare time, it’s also time to start paying back Uncle Sam for those retirement tax breaks. Second, let’s increase the minimum withdrawal percentages to bring them more in line with actual life expectancies. Third, let’s forbid so-called “stretch IRAs”. These are multi-generational transfers, now permitted, which can string out distributions (and the taxes on those distributions) into the next century. Multi-generational transfers are fine, but America deserves its full cut first.
It’s the least the affluent can do (or anybody for that matter) to square accounts with a generous uncle.
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(If you support the reforms outlined above, email this piece to your U.S. Senators and Representative; you never know.)
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