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Making Sense of Obama’s Proposed Budget (Part 1)

April 21, 2015

Earlier this year, President Obama unveiled 2016 budget proposals that are befuddling financial advisors, much less average people. While unlikely to be made law, I’ll attempt to make sense of them in this blog mini-series. Bringing “harmony” to required minimum distribution (RMD) rules. 


This proposal isn’t harmony, it’s a needle scratching a record.


The aim is to standardize RMD rules for retirement accounts, making them the same for Traditional IRAs, Roth IRAs and so on. The problem is Roth IRAs are fundamentally different, with one of the biggest advantages being no RMDs! Requiring RMDs on Roth accounts is a gut punch for those who’ve planned with strategies like Roth conversions.


Congress should simply eliminate RMDs for Roth accounts, keeping current and soon-to-be retirees’ planning strategies valid and intact.


Roth conversion limits


In late 2014, the IRS released guidance on making Roth IRA conversions (Traditional to Roth) of after-tax money in employer-sponsored retirement plans easier. These conversions allow those above the Roth income threshold to take advantage of Roth accounts.


However, the president proposed limiting conversions to pre-tax dollars, which would effectively close the Roth door for high earners.


So we have one government entity saying one thing and another saying something else. Meanwhile, investors and advisors await clarification.


NUA no more


The tax break for net unrealized appreciation (NUA) in a qualified retirement plan, one that has existed for decades, is now an issue?


Currently, people with highly appreciated company stock in a qualified employer-sponsored plan can trade an ordinary income tax rate on those assets for a capital gains rate. But not anymore, if the proposal becomes law.

Why? Even I don’t know how to make sense out of this one.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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