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Making Sense of Obama’s Proposed Budget (Part 4)

May 12, 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. Automatic Retirement Saving This proposal is another attempt to increase Americans’ dismal savings.


Specifically, the president wants to require firms in business more than two years (with more than 10 employees) to offer an automatic Individual Retirement Account (IRA) option if they don’t already offer other retirement plans.


Of course, there are several proposed rules. The basic outline is the accounts (Roth IRA by default) would be funded by automatic 3% payroll deductions. However, employees could choose their savings rate, destination (Traditional or Roth IRA) or opt out. Employers would receive tax credits to offset costs.


It’s a laudable aim, and there could be benefits for low-income workers. Still, this could result in people contributing to Roth IRAs for which they’re ineligible (meaning IRS penalties) if a spouse’s income pushes the couple above the Roth IRA income threshold.


This is a good idea in principle, but the execution needs work. 


Penalty-Free Annuity Movement


If an employer offered an annuity within its retirement plan, then decided not to offer it, this proposal would allow for direct annuity rollovers to another retirement account without penalty.


This proposal makes sense because it allows portability without imposing requirements or restrictions on employers.


Eliminate Certain Dividend Deductions


President Obama’s final budget proposal would eliminate deductions for dividends on stock within an Employee Stock Ownership Plan (ESOP).


To me, this works because the current system provides additional tax incentives for employers to offer stock within ESOPs as opposed to other retirement plans. The benefits should be uniform across the board.

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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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