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Recession’s Continuing Hardship Hits Middle Class IRAs and Taxes: Part 2
Many struggling middle class Americans who took out money from their retirement accounts in order to pay their bills during the U.S. economic calamity now face insurmountable tax debts-and not just one tax bill, but a "double wammy."
U.S. tax law stipulates that individuals who withdraw money from an IRA account before they reach the age of 59½ must pay a 10 percent tax penalty on that amount. In addition, they are also required to pay the requisite income taxes on the amount taken out as well.
Many who borrowed money from an employer-sponsored 401(k) or IRAs were hopeful that they could dodge the tax penalty if they paid it back. But the inability to procure proper employment has left a huge number of people unable to pay the tax liabilities associated with early withdrawals.
As a result, millions of Americans, particularly older individuals, who struggle to live paycheck to paycheck, face huge IRS assessments for early withdrawals that come with penalties, hefty interest rates, and no repayment schedules.
According to the most recent data from the Federal Reserve, the government collected 37 percent more in IRS early withdraw penalties than it did a decade ago. Billions of dollars in tax debt is still outstanding, and crippling, for hundreds of thousands of others still not helped by a recovery that appears to be tepid at best.
Washington's failure to act
Many were hopeful that Congress would lend a helping hand, but requests for relief were seemingly ignored.
A $10,000 penalty-free withdraw from retirement accounts was touted as one of Obama's top priorities during his 2008 campaign. Yet that initiative, like many other campaign promises, has gone nowhere. It wasn’t included in the 2009 economic stimulus, despite data that showed Americans were left with no other choice but to raid retirement accounts to make ends meet.
Then in 2012, the New York State Society of Certified Public Accountants made another attempt. They asked members of Congress from the House Ways & Means Committee to temporarily waive the 10 percent early tax penalty for retirees facing tax obligations and other economic hardships due to the economic downturn. But such efforts were futile.
Today, foreign relations and immigration issues seem to take top governmental priority. Meanwhile, millions of struggling American families are strapped with IRS tax bills they cannot pay back.
The real, underlying problem
Meager employment prospects, early pension withdrawals and the penalties associated therewith are key reasons why baby boomers are struggling today—and may never recover or be able to retire. But there still remains an underlying problem that baby boomers, and so many others, continue to face: insufficient wages coupled with today’s high cost of living.
A recent report by the Wall Street Journal indicates that after 6 straight years of decline, the U.S. median household income today is now at a level that hasn’t been seen since 1996; 8 percent below what is was 7 years ago in 2007.
Until U.S. wages rise, baby boomers and so many others will continue to struggle in a life without retirement funds strapped with insurmountable tax burdens caused by "one time" pension and IRA withdrawals; not to mention overwhelming high-interest consumer debt that middle class consumers rely on in an effort to weather the staggering economy.
With no help from a federal government that seems to focus on economic recovery for bankers and increasing corporate profits, many American families feel lost with no place to turn.
Despite pressure from Certified Public Accountants and a series of election promises from Congress and the executive branch, hardworking Americans eager to get back to work and hopefully someday retire in dignity have been left to fend for themselves. It’s no wonder why America continues to struggle with stagnant real estate sales and minimal consumer spending.
The Law Offices of Neil Crane, LLC: their objective
Given the lack of recovery and the legislative void, baby boomers and middle class consumers need and deserve the experience and benefit of attorneys like The Law Offices of Neil Crane, LLC, and other accounting and financial professionals dedicated to providing customized solutions for the non-recovered. These specialized professionals are available to offer support and debt relief options for those who no longer seem to have a voice and are struggling to stay afloat in a U.S. economy fraught with continued economic stagnation.
The Law Offices of Neil Crane, LLC, is a debt relief agency with 30+ years of experience helping individuals, families, and businesses find solutions to their tax burdens and other debt relief options.