The president’s budget proposals designed to encourage the offering of workplace retirement plans once again included his federal automatic IRA proposal requiring private employers with 10 or more employees and no retirement plan to offer an automatic payroll deduction IRA program. There would be a tax credit for employers to defray the administrative costs of implementation. Another proposal would triple the start-up credit for qualified retirement plans, and for the first time provide for a credit of $1,500 to small business owners who add automatic enrollment to an existing 401(k) plan.
President Obama’s budget includes other provisions that would change the tax treatment of IRAs and qualified retirement plans. The budget includes the so-called “stretch IRA” provision that would force non-spouse beneficiaries of retirement plans and IRAs to take distributions from these inherited accounts over no more than five years. Another proposal would disallow any after-tax amounts held in traditional IRAs or qualified plan to be converted to Roth. A third proposal expands penalty-free early distributions from qualified plans and IRAs for long-term unemployed individuals.
The Republican Congress will begin its process for crafting its own budget in the coming weeks. The budget Congress produces will hardly resemble President Obama’s approach. However, the revenue raising provisions included in President Obama’s budget will remain attractive to lawmakers to the extent that they seek revenue to pay for other priorities, like transportation infrastructure and Medicare spending.