How Obama and McCain Want to Change Your Retirement Accounts

Most retirees will pay less tax under Obama’s rescue plan.

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The subject of retirement accounts was briefly mentioned in the first question of last night's presidential debate. Barack Obama proposed penalty-free hardship withdrawals from IRAs and 401(k)'s, which are currently subject to a 10 percent early withdrawal penalty for those younger than age 59½ who need access to their retirement stash. Fifteen percent of the account—up to $10,000—may be withdrawn in 2008 (including retroactively) and 2009 but will still be subject to normal taxes.

Both Obama and John McCain's recently proposed economic plans will also allow retirees to avoid selling off their retirement assets while the market is at historic lows. Currently, annual withdrawals from traditional IRAs are required for everyone age 70½ or older. These required minimum distributions are taxed as income. Both senators have circulated proposals to temporarily suspend the required withdrawals for seniors over age 70½. This will allow flailing nest eggs more time to recover from recent market turbulence.

But some retirees need to tap their retirement accounts for immediate expenses and can't put off their distributions until the market improves. To help this group of retirees, both candidates plan to lower the tax rate on retirement account withdrawals, which are currently taxed as income. McCain will tax withdrawals from retirement accounts at the 10 percent rate up to the first $50,000 withdrawn. Obama will exempt from taxation any withdrawals made up to the required minimum amount.

Here's a look at how the economy is affecting baby boomer retirement.

Tell us, what else could the candidates do to help retirement savers?