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.”
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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.”