More On Legal & Compliancefrom The Advisor's Professional Library
- The New and Improved Form ADV Whether an RIA is describing its investment strategy in advertisements or in the new Form ADV Part 2, it is important the firm articulates material risks faced by advisory clients and avoids language that might be construed as a guarantee.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
President Barack Obama’s $3.9 trillion budget for fiscal 2015 includes new taxes on wealthy Americans and businesses, as well as places curbs on retirement savings contributions while also providing some proposals for helping students and parents pay for college.
While Obama’s plan would include automatic enrollment in IRAs for workers as well as several provisions to help students and families pay for college tuition, industry officials are bristling over the proposals to limit the up-front tax benefits for many 401(k) and IRA savers, as well as placing a cap on the amount Americans can accumulate through the combination of defined benefit and defined contribution plans as well as IRAs.
In a speech from Powell Elementary School in Washington, Obama said that his budget is a “roadmap for creating jobs with good wages and expanding opportunity for all Americans,” while also investing in the nation’s “economic priorities in a smart way that is fully paid for by making smart spending cuts and closing tax loopholes that right now only benefit the well-off and the well-connected.”
Right now, Obama said, “our tax system provides benefits to wealthy individuals who save, even after they’ve amassed multimillion-dollar retirement accounts. By closing that loophole, we can help create jobs and grow our economy, and expand opportunity without adding a dime to the deficit.”
Obama’s budget again proposes a limit on the value of all tax deductions, defined contribution exclusions and IRA deductions to 28% of income, and also proposes to cap the overall amount that could be held in tax-deferred accounts at $3.4 million.
Mike McNamee of the Investment Company Institute notes in a Tuesday blog that limiting tax deferrals to 28% “for the highest three income brackets (33%, 35%, and 39.6%) would substantially change the tax treatment of retirement contributions and undermine retirement security by reducing incentives for businesses to provide retirement plans.”
Brian Graff, executive director of the American Society of Pension Professionals and Actuaries, says Obama's proposal includes "the same wrong-headed attacks on employer-sponsored retirement plans as last year."
Said Graff: "The double tax on contributions to 401(k) plans and the misguided $3 million cap on the value of retirement benefits do not close any loopholes or curb any abuse. They punish small-business owners who sponsor retirement plans for themselves and their employees. It is disappointing that an administration that claims to be concerned about giving more American workers access to retirement savings would discourage small-business owners from maintaining the 401(k) plans they have now."
Under the budget proposal, workers earning more than $250,000 would have to pay tax on contributions in the year the contributions are made, and then pay tax at the full rate when contributions are distributed at retirement, Graff said. "This amounts to a penalty for saving through a 401(k) plan. Who could blame a small-business owner for thinking that if the government is going to penalize them for saving in a retirement plan, maybe they should not have that plan?"
Obama also said that his budget “gives millions more workers the opportunity to take advantage of the tax credit,” paying for this “by closing loopholes like the ones that let wealthy individuals classify themselves as a small business to avoid paying their fair share of taxes.”
The budget would also eliminate a provision used by hedge funds and private-equity firms to treat income from managed investments, known as carried interest, as capital gains, as opposed to ordinary income.
Obama said during his Tuesday comments that at a time when the nation’s “deficits have been cut in half,” his budget plan “allows us to meet our obligations to future generations without leaving them a mountain of debt,” and “adheres to the spending levels that both parties in both houses of Congress already agreed to.”
Said Hatch: “Instead of embracing fiscal responsibility, this budget increases government spending by $791 billion over the next 10 years. Instead of tackling the nation’s sky-high debt, which has already exploded by a whopping $6.8 trillion under this White House, this budget slaps on an additional $8.3 trillion over the next decade and fails to include any substantial reforms to the greatest drivers of our debt — Medicare, Medicaid and Social Security.”
Indeed, political strategist Greg Valliere of Potomac Research opined Tuesday that because "the White House needs to keep Democrats motivated for the fall election,” the budget will not mention entitlement reform.
Obama’s budget did, however, abandon the idea of a “chained” consumer price index that would slightly reduce Social Security cost of living adjustments (COLAs). As Valliere notes, “Congress earlier this year caved in on a modest COLA reduction for military retirees — confirming that no one in this city dares to touch the issue, even though it will demand attention later this decade.”