President Barack Obama wants to prevent people from accumulating too much money in their tax-advantaged retirement accounts or trusts for heirs, adding to pressure on the wealthy after raising tax rates in January.
Obama’s 2014 budget proposal, released yesterday in Washington, would increase estate taxes and limit techniques used by the wealthy to transfer assets through trusts.
The plan also caps at $3.4 million the amount individuals can amass in tax-preferred individual retirement accounts and requires those who inherit IRAs to take taxable distributions within five years instead of over their lifespan.
Financial planners and tax professionals said such changes could mean big headaches for individuals, especially the wealthy, as they plan for retirement or strategize about passing on assets to their heirs.
“We are going to penalize people for being diligent about their planning and their saving and for accumulating wealth,” David Scott Sloan, chair of the national estate planning practice at the Holland & Knight LLP law firm in Boston, said of the proposals. “If you save too much, we’re going to tax it.”
The budget plan calls for returning the estate tax in 2018 to 2009 levels, which is a reversal from the so-called fiscal- cliff budget deal Obama signed in January. That law made the estate-tax terms permanent and indexed them for inflation.
“We believe that in these fiscal times, that it’s responsible policy in 2018 for the estate tax to return to the 2009 parameters,” Jeffrey Zients, acting director of the Office of Management and Budget, said in a press briefing yesterday.
Not ‘Permanent’
Obama’s budget would drop the per-person exemption from estate taxes to $3.5 million from $5.25 million this year and increase the top estate tax rate to 45 percent from 40 percent. The $3.5 million exemption wouldn’t be indexed for inflation.
“It gives us new meaning to the word permanent,” Sloan said. “Apparently permanent means five years.”