Tax Reform and the Role of the Advisor

The Trump administration and the Republican-controlled Congress are expected to move forward a significant number of legislative priorities. High on this list of priorities is tax reform. Regardless of your political leanings, tax reform is very likely to have a significant impact on your IRA and retirement plan practices.

The first question many people ask is: So what is going to happen? A lot can move around when tax reform is on the table. The following are some likely key areas of focus:

Retirement as a Revenue Raiser

Starting with the significant retirement tax changes made by the Economic Growth and Tax Relief Reconciliation Act of 2001, after-tax Roth contributions have been frequently used ways of generating additional tax revenue. Because of the way the federal budget works, when Congress determines whether legislation increases or decreases the deficit, it only looks 10 years into the future. Increased Roth contributions are not usually expected to increase the deficit in the next 10 years, thus generating extra budget revenue. Prior tax proposals, including one notable proposal from Rep. Dave Camp, former Chairman of the House Ways and Means Committee, would have required that a portion of employee contributions be made on an after-tax Roth basis. Similar proposals are likely to emerge, and could dramatically affect how advisors help their clients.


Key leaders in the House of Representatives, including Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady, are advocates of tax “simplification.” Simplification can take many forms — including a movement to Roth — but can also involve elimination of features and structures common in many types of existing retirement savings vehicles. Advisors would play a key role in working with their clients to help them through these changes.

Other Features

Recent bipartisan legislative activities have focused on “open” multiple employer plans (called “pooled employer plans” in more recent legislation) and the increased availability of lifetime income features in retirement programs. These features are likely to remain in play and on the radar as part of tax reform. Advisors will have both new business opportunities and challenges depending on how this process moves forward.

Timing of the Process

How long tax reform will take is a great unknown. The legislative process requires time and, at times, can drag out. Congress has a special budget legislative process available, called reconciliation, that requires only 51 votes for legislation in the Senate (as opposed to a filibuster-proof 60 votes), which is key given the 52-48 Republican majority in the Senate. However, there are still many ways legislation can be delayed — by members of both political parties — so the exact timeline for tax reform legislation is hard to predict.

Click here to browse past columns by David Levine.

The flip side question is: What is less likely to happen? With Republican control of Congress and the White House, much can happen quickly. However, the reconciliation process has its limits. Due to a procedural rule called the Byrd Rule, Democrats possess significant ability to push back on provisions that may have budgetary implications beyond the 10-year budget window or that are policy provisions (such as the fiduciary rule) that do not affect federal government budget revenue.

Tax reform can have a dramatic impact on IRAs and retirement plans. When changes occur, advisors will be on the front line with their clients, and will need to be ready to lead them through those changes. In the meantime, advisors should remain involved and vigilant to help ensure that the retirement system remains a vital and important part of tax policy as the tax reform process moves forward.

David N. Levine is a principal with Groom Law Group, Chartered, in Washington, DC. This column originally appeared in the Spring issue of NAPA Net the Magazine.

Post a Comment

Your email is never published nor shared. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>