NEW YORK – Since 2010, WND has been reporting President Obama’s intent to extract more money from personal retirement accounts.
Now, Rush Limbaugh has expressed his concern, citing President Obama’s recently proposed fiscal year 2016 budget as proof Democrats have a plan to tax retirement accounts as a means of funding the administration’s ever-expanding social welfare, including to millions of illegal aliens granted amnesty by executive action.
“You can’t just rely on fake money that’s printed. They’re gonna have to get more,” the talk-radio host said Feb. 6. “They’re gonna target money, and I warned everybody, ‘They’re gonna come after your pensions, and they’re gonna come after your retirement accounts, because that’s real money there, and it’s yours, and it’s there.’”
After combing through the Obama budget submitted, Market Watch found a dozen new taxes the Obama administration wants to impose on retirement accounts.
For starters, under the Obama administration proposals, the after-tax money held in traditional IRA or employer-sponsor retirement plans would no longer be eligible for conversion to a popular Roth IRA. There is no up-front tax deduction for Roth IRA contributions as there are in traditional IRAs. Roth distributions are tax-free when the retirement investor follows the rules.
These features make the Roth IRAs ideal saving vehicles both for younger, lower-income workers who do not need the tax advantage on contributions, as well as for older, wealthier taxpayers who want a way to leave their assets to their heirs tax-free.
“For years, many taxpayers that have been restricted from making contributions directly to Roth IRAs (because their income exceeded their applicable threshold) have instead, made contributions – often nondeductible (after-tax) – to traditional IRAs,” wrote CPA Jeffrey Levine in the Market Watch analysis. “Then, shortly thereafter, they have been converting those contributions to Roth IRAs. This two-step process, widely known as the backdoor Roth IRA, would be all but eliminated by this provision.”
Market Watch described as “one of the most egregious proposals in the entire budget” the change to “simplify” Required Minimum Distribution, RMD, rules for Roth IRAs to be the same as the rules imposed on other retirement accounts. As a result, a person would be required to take distributions from his Roth IRA once he turns 70-and-a-half, just as he is required to make withdrawals from traditional IRAs and other retirement accounts at that age.
“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,” Levine wrote in Market Watch.
“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,” Levine continued. “At the very least, the administration should grandfather any existing Roth IRA money into the “old” rules should this provision ever become law.”
Other proposed changes would limit the maximum tax benefit one could receive – either as a tax deduction or exclusion – for making a contribution to a retirement plan, including both IRAs and 401(k) plans, to 28 percent. As a result, someone in the 33 percent, 35 percent or 39.6 percent ordinary income tax bracket would be limited to a 28 percent tax deduction, or exclusion, for the amounts contributed or deferred into a retirement account, instead of the corresponding rate.
“It is unlikely that any of President Obama’s proposals [to increase taxes on retirement savings accounts] will pass under the current Congress,” wrote Karen Beseth, author of the insurance industry blog on Watchdog.org. “That doesn’t mean these ideas will go away. The national debt is a staggering $18.1 trillion, and unfunded liabilities come to an astronomical $94 trillion.”
Beseth pointed out that with more than $10 trillion currently in retirement accounts, it’s “a lot of money to be left untaxed as the mountain of debt continues to grow.”