Obama’s Budget Signals Death of Many Tax Breaks
President Barack Obama’s budget proposal released Tuesday could mean the end of several tax-saving strategies wealthy investors have come to rely on, the Wall Street Journal writes.
The proposals, which include provisions to raise taxes and limit tax-reducing tricks in retirement accounts, are not likely to pass in an election year, according to the Journal.
But even if the proposals don’t become reality their mere existence signals that certain tax-minimization strategies will be soon phased out, Michael Kitces, director of financial planning at Pinnacle Advisory Group, tells the Journal.
The White House could put certain retirement savings limits as revenue provisions in a piece of legislation or become part of wider tax reform, InvestmentNews writes.
On the tax side, Obama’s budget proposal would raise the capital gains and dividends tax rate to 24.2% and tax people earning more than $2 million at a minimum 30% rate, according to the Journal.
Several of the retirement-savings trimming proposals appeared in last year’s budget. This includes the discontinuation of the back-door contributions to Roth IRAs, which let some savers bypass income limits on contributions to Roth IRAs with a two-step contribution of after-tax money, according to the Journal.
Additionally, the latest budget suggests forcing mandatory distributions from Roth IRAs and a ban on any contributions after a saver is 70 1/2 years old, the paper writes.
Furthermore, the White House proposes eliminating the stretch IRA strategy, which lets beneficiaries spread out withdrawals for tax advantages, for anyone other than spouses, according to the Journal.
This proposal may actually end up as part of legislation later this year, according to Jules Gaudreau, president of the National Association of Insurance and Financial Advisors, InvestmentNews writes.
Another tax break in Obama’s crosshairs is the ability to pay only long-term capital gains tax on any profit when selling employer stock held in retirement accounts, according to the Journal.
Furthermore, Obama’s budget recommends applying the 3.8% tax to pass-through businesses for business owners who earn more than $200,000 or $250,000 as a couple, in addition to the 39.6% capital gains or the alternative minimum tax, the Journal writes.
Finally, Obama’s budget includes a provision to allow people out of work for more than 26 weeks to withdraw $50,000 a year from tax-exempt or tax-advantaged retirement accounts for two years without any penalty, according to the Journal.