There are a couple of pieces of tax legislation that would be particularly valuable, not just for our clients, but long term investors and retirees in general. Email your Representatives and Senators (Better yet, write a letter.)
Unfortunately, for quite a few Americans, a longer time horizon to retirement is very likely. Sponsored by Rep. Peter King (R-NY), HR 882 proposes to increase the required age for distributions from qualified retirement plans to 75 from 70½. The effective date would be for years beginning after the date of enactment. Thus, if the bill were to become law this year, the age 75 rule would be effective for 2010 and thereafter. The bill would also provide for contributions to traditional individual retirement accounts to the year prior to age 75 rather than the present rule of 70½. This would provide needed additional years of saving and accumulation for many Americans and would encourage longer holding times for investments.
Also introduced by Rep. King, this bill repeals that vile and silly increase in income taxes on Social Security benefits. The 1993 increase added the provision that required up to 85% of Social Security benefits be taxed, based upon a complex two-tiered formula. The 85% inclusion rate would be repealed. The maximum inclusion rate for Social Security benefits would be reduced to 50%. The proposed effective date is 2009 for calendar-year taxpayers. Lowering taxes on benefits will have the immediate effect of reducing the drain on retiree portfolios, while allowing some individuals greater flexibility in saving for retirement. Also - taxing government old age pensions never makes any sense.
Sen. Blanche Lincoln's (D-AR) bill proposes to increase the limitations on capital losses applicable to individuals. The proposal would increase the annual capital loss limit for individuals to $10,000 from $3,000. The proposed effective date is for tax years beginning after Dec. 31, 2008. Therefore, the proposed increase would apply for the entire 2009 tax year for calendar-year taxpayers. The proposal would also provide for inflation indexing of the $10,000 capital loss limit beginning in 2010. This make it more advantageous for younger investors to take greater risks (by making losses more 'valuable'), make portfolio rebalancing easier for the middle aged (and let people diversify their risk more regularly) and let financial advisors generate more interest income for clients (thus allowing older investors to invest more conservatively).
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