ElderWeb

The Senate Finance Committee is considering the need for tax simplification, including simplification of retirement plan distribution rules and rules related to the taxation of Social Security benefits. For example, the tax Code currently provides that retirement plan benefits must begin by April 1 of the calendar year following that in which the employee turns 70 1/2, and that plan benefits may not be distributed before attainment of age 59 1/2. The half-year age conventions confuse retirees and complicate retirement plan operation because they require employers to track dates other than birth dates.

Richard M. Lipton of the American Bar Association, Pamela J. Pecarich of the American Institute of Certified Public Accountants, and Betty M. Wilson of the Tax Executives Institute, testified before the Senate Finance Committee, and noted that changing the half-year conventions for retirement plan distributions to full-years would greatly simplify matters for both retirees and their employers. They also noted that the rules related to retirement plan distributions are among the most complex in the Code and present numerous traps for the unwary. Since an ever-growing percentage of Americans are now in or approaching their retirement years, millions of retirement accounts will soon become subject to these rules, and simplification is badly needed.

Lindy L. Paull of the Joint Committee on Taxation suggested other changes, including setting a fixed rate for all Social Security benefits to eliminate the need for an 18-line worksheet now needed to calculate taxes. The Joint Committee is also proposing changes that would make distributions from all types of retirement plans more consistent, and hopes to improve the readability of the code related to taxation of annuity income.