Obama Budget Triggers Retirement Changes
BOSTON (TheStreet) -- Within the pages of President Barack Obama's fiscal 2013 budget proposal are several initiatives that could have a direct impact on your retirement strategy, including deduction limits for high-income 401(k) investors and a mandate for employer-offered IRA plans.
Brian Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries, lambasted the president's proposals to limit the tax benefit for retirement savings for families earning over $250,000 as a "double tax on contributions" and "bad policy based on bad math."
|Initiatives in President Barack Obama's fiscal 2013 budget proposal could have a direct impact on retirement strategies.|
The budget seeks to reduce the value of itemized deductions and other tax preferences. It would limit the tax rate at which high-income taxpayers can reduce their tax liability to a maximum of 28%, affecting only married taxpayers filing a joint return with income over $250,000 and single taxpayers with income over $200,000. This limit would apply to all itemized deductions; foreign excluded income; tax-exempt interest; employer-sponsored health insurance; and retirement contributions.
Gaff explains that under current law, there is already a $250,000 cap on compensation that can be used to calculate contributions to 401(k) plans. The proposal effectively doubles down on this limit for 401(k) plans and "takes an ax to the tax incentives that encourage small-business owners to offer these types of plans at work."
"Unlike other targeted tax incentives, the tax break for retirement savings is a deferral, not a permanent write-off," Gaff says. "Under the president's budget, these taxpayers wouldn't just lose a current tax break, they would actually be penalized for saving -- paying taxes now and taxes later. This will discourage small-business owners from setting up or maintaining retirement savings plans for their employees. Workers that lose workplace retirement savings plans will be the ones that really pay for this misguided proposal."