The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Missouri addressed federal tax reform tax proposals affecting retirement plans. The advisor asked:
“What is the word from the White House on tax reform proposals that could affect retirement savings?”
Highlights of Discussion
In his State of the Union address on Jan. 20, President Obama outlined his agenda for tax reform, which includes provisions that could — if enacted — affect the retirement services industry.
The White House released a fact sheet on the proposed tax code changes that were part of the State of the Union address. The provisions that have the potential to affect retirement savings are identified and briefly summarized below.
Auto-IRAs
- Every employer with more than 10 employees that does not currently offer a retirement plan would be required to automatically enroll their workers in an IRA.
- The government would grant every employer with 100 or fewer employees who offers an auto-IRA a $3,000 tax credit.
Start-Up Tax Credit
If enacted, this proposal would triple the existing plan start-up tax credit, so small employers without plans who choose to offer retirement plans potentially could receive up to a $4,500 tax credit.
Increase Plan Coverage for Part-Time Workers
Under this proposal, the government would require employers who offer plans to permit employees who have worked for the employer for at least 500 hours per year for three years or more to make voluntary contributions to the plan.
Cap Retirement Savings
The government would prohibit contributions to and accruals of additional benefits in tax-preferred retirement plans and IRAs once balances reached $3.4 million, enough to provide the owner with an annual income of $210,000 in retirement.
Increase Capital Gains Tax
The proposal would increase the total capital gains and dividends tax rates for high-income households to 28% and eliminate the stepped-up basis for inherited assets.
Conclusion
The tax reform proposals contained in the president’s 2015 State of the Union address are just the first volley in what will likely be a drawn out, convoluted match with Congress. Much, much more to come.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2015 Columbia Management Investment Advisers, LLC. Used with permission.
