Tax reform for retirement accounts

[jfoxcpacfp]

From the 6/2 Kiplinger newsletter, the House GOP blueprint released last year alludes to the following changes affecting retirement savings:

• Reduction in the amount of pre-tax contributions to 401k plans. Up to 1/2 of the current employer contribution would qualify for pre-tax treatment ($9k or $12k if age 50+) with any excess directed into a Roth 401k,


• Ban all deductible TIRA contributions, but leave Roth IRA limits intact,


• Discontinue future SOLO-401k and SEP IRA plans (current plans would remain intact),


• Lower the cap on total retirement plan payins (ee and er), and


• Freeze the present contribution limits for employee plans and IRAs by suspending or doing away with annual inflation adjustments.

It's interesting to me that these considerations are pro-Roth and anti-deduction. Very short-sighted, but no mention of taxing Roth distributions, limiting conversions, or instituting RMDs for Roth IRAs - yet.

Another consideration is to allow IRAs as S-corp shareholders. Trying to wrap my mind around that one.

[ENT Doc]

Trump's plan leaves these retirement accounts intact.  Like anything in the news these days, I'll wait until the fat lady sings before getting concerned.  Even if enacted as proposed, it's not necessarily short-sighted.  We have a pressing need to address a tremendous annual deficit and larger national debt, especially if taxes are to be reduced on corporations and individuals.  Regardless of one's political leanings, the math shows that our continued hundreds of billions in annual deficits creates a substantial long-term fiscal health problem.

[VagabondMD]

It appears that the government is not content to have their cut "eventually". They want it now. Obviously, this disproportionately affects high W-2 earners like MDs.

[jfoxcpacfp]

ENT Doc wrote:

Trump’s plan leaves these retirement accounts intact.  Like anything in the news these days, I’ll wait until the fat lady sings before getting concerned.  Even if enacted as proposed, it’s not necessarily short-sighted.

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I agree, but thought it might interest some here. No predictions on my end. I do hold to the opinion that moving deductible contributions to Roth's is short-sighted, though, and believe there are better ways to address the deficit that could result in a permanent revenue increase as opposed to grab what you can now at the cost of future tax revenue. Kick the can and so forth.

[spiritrider]

Personally, I don't get too excited about what is in blueprints unless they make it to the floor as legislation. These things are very often nothing more than trial balloons.

For example, in both of the last two Obama Administration budgets were proposals to do away with the backdoor Roth and the mega-backdoor Roth. Neither ever saw the light of day.

And last year Senate democrats floated a proposal that among other things; eliminated Roth conversions, eliminated lifetime distributions from inherited accounts and applied RMD rules to Roth IRAs.

Proposals are just that. Time to get excited is when there is actually legislation and it has a chance of passing. Although, it is a little disconcerting that they are even topics for discussion.

Remember things don't have to make sense for congress. They pay more attention to short term CBO scoring than what the long terms cost/benefit is.

[AZdoc68]

ENT Doc wrote:

Trump’s plan leaves these retirement accounts intact.  Like anything in the news these days, I’ll wait until the fat lady sings before getting concerned.  Even if enacted as proposed, it’s not necessarily short-sighted.  We have a pressing need to address a tremendous annual deficit and larger national debt, especially if taxes are to be reduced on corporations and individuals.  Regardless of one’s political leanings, the math shows that our continued hundreds of billions in annual deficits creates a substantial long-term fiscal health problem.

Click to expand...

I agree and will ignore the "white noise" until they actually get around to seriously debating concrete proposals.  That may not even happen until 2018 with the slow pace going on currently.

Since we clearly have a savings problem in this country (most people have pathetically little set aside for retirement), I'd like to see more generous 401k, IRA, and HSA limits and a phasing out or elimination of as many tax code distortions as possible.  For example:

• Eliminate the tax deduction for state income taxes.  All that is is a federal subsidy for high-tax state residents and high tax-loving politicians than run them.


• Eliminate or dramatically curtail the home mortgage interest deduction (reduce it to say only the interest on the first $100k of mortgage debt).  The government shouldn't pick favorites in terms of renting vs buying and the vast majority of the benefits don't go "1st time homebuyers just getting started".


• Eliminate the refundability of all tax credits (make them all non-refundable).  Refundable tax credits are little more than welfare payments disguised as a tax refunds since you are giving someone back an amount greater than they paid in total income taxes.  Refundable tax credits are also rife with fraud.

[Zaphod]

Ive seen bills on the docket for the whole spectrum, increase significantly, and decrease radically. Prediction, nothing burger.