By Karen Beseth | Watchdog Arena
You should be concerned about President Obama’s plans to raise taxes, even if you aren’t one of his main targets for tax hikes. Your retirement could be at stake.
Earlier this week the president finally revealed his budget proposal. He wants to increase spending, increase the deficit, and increase taxes, all while promising to simplify the tax code. “Simplify” is an odd way of putting it, considering that his proposals would actually make the tax code even more complex.
Most Americans might not be too concerned about his plans to raises taxes on the wealthy and corporations, but they might be concerned about his proposals to change the tax treatment of retirement accounts.
Politico made light of a provision known as “The Mitt Romney Loophole,” but failed to mention the other ways the president wants to change the tax treatment of retirement savings. Wealthy Americans will not be the only investors affected by these proposals.
Market Watch went through the budget and found that there are more than a dozen provisions in the budget that target retirement accounts. They aren’t all bad, but the proposal to change the rules on Roth IRAs would hit middle class savers the hardest.
Under the Obama plan employees would no longer be allowed to convert traditional retirement accounts to Roth IRAs. Further, he wants to impose required minimum distributions (RMD) on Roth IRAs, which, according to Market Watch, is the most egregious proposal.
Unlike traditional IRAs, contributions are made to Roth IRAs after taxes, but then they aren’t taxed again on earnings that accumulate over the years. Currently people can withdraw as much or as little from these accounts as they like any time after the age of 59½.
Jeffrey Levine of Market Watch had this to say about the Roth IRA proposal:
“This is one of the most egregious proposals in the entire budget. Countless individuals made Roth IRA conversions over the last 17 years, and many of them did so, in part, due to the fact that Roth IRAs have no required minimum distributions. To change the rules now, after people have already made these decisions, would be terribly unfair and would constitute a tremendous breach of the public’s trust. At the very least, the administration should grandfather any existing Roth IRA money into the “old” rules should this provision ever become law.”
Pres. Obama’s claims of helping the middle class are belied by his actions. He only scrapped his plan to tax 529 college savings plans after a big public outcry. He did propose some tax breaks, but even those would only help about a quarter of middle class families.
On top of that, he wants to nearly double the cigarette tax which will hurt lower income Americans the most. Now he has this proposal to change the rules on millions of responsible, hard-working Americans who have been saving for retirement.
It is unlikely that any of Pres. Obama’s proposals will pass under the current Congress. That doesn’t mean that these ideas will go away. The national debt is a staggering $18.1 trillion, and unfunded liabilities come to an astronomical $94 trillion.
Collectively, Americans have more than $10 trillion saved in retirement accounts. That’s a lot of money to be left untaxed as the mountain of debt continues to grow.
This article was written by a contributor of Watchdog Arena, Franklin Center’s network of writers, bloggers, and citizen journalists.