ClydeR
10-14-2008, 07:24 PM
As a salve for hard economic times, Obama proposed tax relief yesterday for retirement plan (401k accounts and most IRA accounts) withdrawals. Today, McCain one-upped him and offered even more relief. Although the issue is complicated, I think their two approaches to the issue demonstrate how they would balance the issues of fairness and equality in the tax laws.
Based on my reading of a single article in US News (http://www.usnews.com/articles/business/retirement/2008/10/14/what-obama-and-mccains-new-plans-mean-for-you.html), I have determined that the best way to break down their proposals is by the age of retirement plan participants. Below I summarize their proposed treatment of those below age 59.5 years, those between 59.5 and 70.5, and those above 70.5.
Obama
Under 59.5 -- Penalty free (the normal penalty is 10%) withdrawal through 2009 of lesser of 15% of account balance or $10,000, but still subject to normal income tax rates.
Between 59.5 and 70.5 -- Nothing.
Above 70.5 -- Tax-free withdrawals up to the amount of the "required minimum distribution." (People over 70.5 are required to take a minimum amount from their retirement account each year based on their life expectancy.)
McCain
Under 59.5 -- Nothing.
Between 59.5 and 70.5 -- The first $50,000 of withdrawals each year will be taxed at a 10% income tax rate through the end of 2009, instead of the taxpayer's normal marginal income tax rate.
Above 70.5 -- In addition to the $50,000 for those in the above group, those above age 70.5 will be exempt from the requirement to take a "required minimum distribution" each year.
It's not easy to sift through those complicated proposals and discern the candidates' philosophy. Don't tax your brain. Let me do it for you.
Obama wants most of the benefit to go to people, including young people who may have lost their jobs, who both a) have modest balances in their retirement plans and b) don't have a lot of other income. McCain wants everybody who has reached retirement age to get a sizable benefit. The difference between the two is that Obama's plan unfairly advantages poor people, when the reward should go to good productive people who have contributed the most to society and, consequently, have large balances in their retirement plans.
Based on my reading of a single article in US News (http://www.usnews.com/articles/business/retirement/2008/10/14/what-obama-and-mccains-new-plans-mean-for-you.html), I have determined that the best way to break down their proposals is by the age of retirement plan participants. Below I summarize their proposed treatment of those below age 59.5 years, those between 59.5 and 70.5, and those above 70.5.
Obama
Under 59.5 -- Penalty free (the normal penalty is 10%) withdrawal through 2009 of lesser of 15% of account balance or $10,000, but still subject to normal income tax rates.
Between 59.5 and 70.5 -- Nothing.
Above 70.5 -- Tax-free withdrawals up to the amount of the "required minimum distribution." (People over 70.5 are required to take a minimum amount from their retirement account each year based on their life expectancy.)
McCain
Under 59.5 -- Nothing.
Between 59.5 and 70.5 -- The first $50,000 of withdrawals each year will be taxed at a 10% income tax rate through the end of 2009, instead of the taxpayer's normal marginal income tax rate.
Above 70.5 -- In addition to the $50,000 for those in the above group, those above age 70.5 will be exempt from the requirement to take a "required minimum distribution" each year.
It's not easy to sift through those complicated proposals and discern the candidates' philosophy. Don't tax your brain. Let me do it for you.
Obama wants most of the benefit to go to people, including young people who may have lost their jobs, who both a) have modest balances in their retirement plans and b) don't have a lot of other income. McCain wants everybody who has reached retirement age to get a sizable benefit. The difference between the two is that Obama's plan unfairly advantages poor people, when the reward should go to good productive people who have contributed the most to society and, consequently, have large balances in their retirement plans.