The leading edge of the baby boomers will hit age 65 during Barack Obama's administration. Legislation enacted over the next four years will be key to boomers' economic security in retirement, especially as investors frantically try to recover from massive stock market losses before they retire. Here's a look at the president-elect's major retirement proposals:
Income tax for seniors. Obama plans to eliminate all income tax for seniors making less than $50,000 annually. Obama's advisers estimate this will save 7 million seniors an average of $1,400 apiece annually.
Hardship withdrawals. Early withdrawals from IRAs and 401(k)'s are currently subject to a 10 percent early withdrawal penalty for those younger than 59½. Obama proposes penalty-free hardship withdrawals of 15 percent of the IRA or 401(k) account balance, up to $10,000, in 2008 (including retroactively) and 2009. These withdrawals would still be subject to normal income taxes.
Required withdrawals. Annual withdrawals from traditional IRAs and 401(k)'s are currently required for retirees 70½ or older. These required minimum distributions are taxed as income. Obama proposes a temporarily suspension of the required withdrawals for seniors over 70½. This will allow nest eggs more time to recover from recent market losses. He also plans to temporarily exempt any withdrawals made up to the required minimum amount from taxation.
Social Security. Obama does not support raising the retirement age or privatizing Social Security. But he is considering plans to raise payroll taxes for those making more than $250,000 by 2 percent to 4 percent (combined employer and employee) to improve the system's financial position.
Automatic pensions. The Obama administration plans to automatically enroll all employees in a workplace pension plan. Employers who do not currently offer a retirement plan will be required to enroll employees in a direct-deposit IRA account. Employees may choose to opt out. Low- and middle-income Americans will also receive matching contributions. Families than earn less than $75,000 may get a 50 percent match of the first $1,000 of savings.