Balancing Act

Regardless of which party you side with, there is no escaping the impact of the recent financial crisis.

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Everyone is effected in one way or another. Not the least of which are those of us with rollover IRAs, 401ks and similar retirement plans. Driven by market fears and immediate cash needs, many have started to withdraw their funds despite the penalties and tax consequences.

To be certain, the crisis has not escaped the notice of presidential candidates John McCain and Barack Obama. Both have offered some interesting initiatives.

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According to WebCPA, McCain has proposed that 401k and IRA owners over 60 who withdraw $50,000 be taxed at 10% for 2008 and 2009. Perhaps even more interesting, McCain’s proposal would do away with required minimum distributions for those over 70.5.

Another key component to McCain’s proposal is the much talked about federal purchase of failing mortgages and replacing them with fixed rate, government guaranteed mortgages.

Perhaps a little less talked about is McCain’s desire to eliminate taxes on unemployment benefits.

In addition, McCain is advocating an increase in capital losses that can be used to offset ordinary income in 2008 and 2009, from $3,000 to $15,000.

Lastly, in the rare event you actually have long-term capital gains after the carnage in the market, McCain would like to lower your long-term capital gains tax from 15% to 7.5%.

Not to be outdone, Obama has a few ideas on the matter too. Obama is proposing that each family be able to withdraw as much as 15% of their qualified retirement plan without penalty through 2009. This would be limited to $10,000. This idea is also coupled with placing a three month moratorium on foreclosures and the creation of a Jobs and Growth Fund for states and local communities.

Regardless of who moves into the White House, it is likely that the retirement savings rules will be changing in one way or the other. For those who are voting with their wallet, these are both interesting proposals. Which proposal will have the greatest impact on your retirement savings will remain to be seen.