'Big Bang' Predicted From Tax, Retirement Law Changes
Various tax-related bills pending in Congress that are scheduled to be hashed out in the fourth quarter (in theory, at least) could dramatically alter trusts, estates, charitable contributions, gift taxes and financial planning in general. "It'll be a big bang in that we'll be hit with a tax bill at some point that's as monumental as we've ever seen," says Roy Adams, professor emeritus of estate planning and taxation at Northwestern University School of Law.
Adams spoke last month at a presentation in Minneapolis co-sponsored by Securian Trust Company and The Salvation Army on coping with the potential tax changes. Front and center are possible changes in the estate tax, which is slated to be repealed for one year in 2010 before reverting the following year to the exemption level of 2002 ($1 million, versus $3.5 million in 2009) and the top tax rate of 2001 (55%, versus 45% in 2009).
But the big push for health care reform is putting everything else on the back burner, including taxes. "My feeling is that Congress will punt on it this year and take next year to work out a comprehensive tax bill," Adams says.
Elsewhere, the income limitation on converting regular IRAs, 401(k) accounts and 403(b) accounts to Roth IRAs will be removed in 2010, opening it up to wealthy individuals. But that may not be the best move for everyone. "If you think you'll always be in the highest tax bracket and you think future tax rates will rise, you might want to convert now to lock in a lower rate," says Christopher Hoyt, who also spoke at the presentation and is a professor at the University of Missouri-Kansas City School of Law where he teaches courses in federal income taxation and business operations.
For advisors wondering how to position clients in a potentially unsettling tax landscape, both speakers suggested waiting for the dust to settle before putting clients into contingencies that might not be needed.