Help for seniors slammed by stocks
Congress and Treasury are trying to ease the strain on seniors facing penalties for failing to take out required retirement plan distributions.
NEW YORK (CNNMoney.com) -- Responding to the financial market downturn, the Senate on Thursday voted to ease rules for seniors who are required to take distributions from their battered retirement accounts.
The Worker, Retiree and Employer Recovery Act, which the House passed on Wednesday, would temporarily waive the penalty on those 70-1/2 and older if they don't take out their annual required minimum distributions from their IRAs, 401(k)s and 403(b)s in 2009.
"Americans expect Congress to help guard their retirement savings and the measures in this bill will allow folks to avoid being saddled with a tax hit that wouldn't exist under normal market conditions," said Senate Finance Committee Chairman Max Baucus, D-Mont., in a statement.
The bill will now be sent to President Bush for his consideration.
Normally the penalty for failing to take a required distribution is a 50% tax on the amount that should have been withdrawn. That's on top of the income tax seniors would owe on their withdrawal. So if you fail to take out a $10,000 distribution, your penalty is $5,000 plus income tax on the whole distribution.
The legislation offers a penalty-free pass to seniors who don't need to tap their investments now and prefer to let them recover from the storm that has engulfed the markets.
The S&P 500 is down 38% for the year, and close to 50% in November alone. The Nasdaq, meanwhile, is down 40% since January.
In a separate effort, the Treasury has been considering ways to loosen the rules administratively.
"We've been looking into this for awhile [to see] what's possible," said Treasury spokesman Andrew DeSouza.
Of course, a lot of seniors have already taken their 2008 required minimum distributions. The Treasury may try to find a way to help those seniors.
"Anything we look at would take that into consideration," DeSouza said.
CNN congressional producer Ted Barrett contributed to this report. 
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