Retire Safe & Tax Free - Obama Proposes Curbs to Retirement-savings Tax Incentives for Wealthy, Heirs


obama on a billion dollar bill

The measures, which affect 401(k) and IRA limits and beneficiary withdrawals, have been proposed in previous budgets to no avail, but still worry financial industry groups, and should worry you too!!

President Barack Obama has returned to a familiar soundtrack when it comes to curbing tax incentives for retirement savings, and interest groups want to limit its air play on Capitol Hill. In the fiscal 2017 budget proposal the president sent to lawmakers Tuesday, Mr. Obama revived an idea that has appeared in previous budgets: limiting the amount of money that can build up in tax-favored retirement accounts. Under the provision, a saver would not be able to make tax-deferred contributions to defined-contribution or individual retirement accounts if the account produces an annual benefit of more than $210,000.

The current maximum build-up permitted in the accounts is $3.4 million. The proposal would keep them from growing beyond that level. “Such accumulations can be considerably in excess of amounts needed to fund reasonable levels of consumption in retirement and are well beyond the level of accumulation that justifies tax-advantaged treatment of retirement savings accounts,� the Treasury Department states in a document explaining tax proposals in the budget.

The administration also is targeting once again inherited IRAs as a source of tax revenue. There is a proposal in the budget to require anyone other than a spouse who obtains an IRA in a will to take distributions over no more than five years. (Currently, if the plan participant or IRA owner dies before the required beginning date for distributions, the inheritor must beginning taking distributions within one year and be paid over their own life expectancy, or take all distributions within five years. If the owner dies on or after the beginning date for distributions, the heir must take distributions over their own life expectancy.)

Mr. Obama has offered these proposal in previous budgets, and they have stalled in Congress. But the fact that he keeps returning to them has financial industry interest groups concerned. They say the proposals would undermine retirement saving at a time when Americans are not putting away enough money for their post-work lives.

If the retirement-savings limits are promoted by the White House, it could put them on the table as revenue provisions for an individual bill, or they could become part of broader tax reform. This is not the first time these provisions have appeared in the administration's budget, however, as discussions on comprehensive tax reform evolve, it is critical to reaffirm the importance of these incentives to millions of Americans working to save for retirement.

Potentially, these changes could cost retirees and their families trillions of dollars in heavy, immediate and unnecessary taxation of their retirement accounts. If you are concerned, please contact us today.

Marc H. Weiss, Archer Weiss Insurance & Financial Services, Inc. Please Call Toll free: 1-800-831-2901 or (818) 610-8560