The Obama administration proposes to do away with minimum distributions on IRAs worth $50,000 or less.

Americans hold nearly $4.2 trillion in traditional IRAs. That money has yet to be taxed, so it’s small wonder that the government requires you to take your money out and start paying taxes on it. Required Minimum Distributions generally apply once you turn 70-1/2 years old. The required distribution amount is determined by a formula based on your account balance and your age.

Bloomberg reported last week, however, that the Obama administration proposes to do away with minimum distributions on IRAs worth $50,000 or less.

If this measure passes, it could impact a lot of people. The median amount of money held in a traditional IRA is only about $40,000. And, according to the Investment Company Institute (a Washington-based mutual-fund trade group), quite a few people would prefer to leave their money in their accounts. In fact, according to their recent study, 64% of people who took money out of their IRAs in 2008 (the last relevant year with available data) said they did so only to comply with the distribution requirement.

By foregoing distributions (if your IRA is worth less than $50,000) you could let your funds continue to grow, defer the taxes, and perhaps stretch your retirement savings a little further.

Stay tuned to this blog for updates as they develop.