WASHINGTON, March 26, 2018 /PRNewswire/ -- Recently, the Small Business Council of America (SBCA) sent a letter to members of Congress to express the group's concerns about Section 501 of the Retirement Enhancement and Savings Act of 2018 (RESA) that has been introduced in the House and Senate.
"While most of the provisions in RESA would help ensure the continued viability of the retirement plan system, Section 501 of the proposed bill would have an unintended and out of proportion negative impact on this system" said SBCA Chair, Paula Calimafde.
As Ms. Calimafde explains "this provision would basically require that all funds in defined contribution plans and IRAs over $450,000 at the time of the owner's death be brought into the income of most beneficiaries (other than spouses) within five years. We are concerned that this dramatic change in the treatment of inherited plans will trigger the freezing or termination of hundreds of thousands of small business retirement plans."
The SBCA highlighted that, if the proposal becomes law, accountants and other advisors will tell their clients to not save any more in a retirement plan than what they are sure to use during their lifetimes. Most small business owners regard the contributions they make for their staff as the price of being able to have a qualified plan to save in for their own retirement. Thus, once they reach the advised amount of savings, small business owners will close or freeze their plans. For the employees, this will mean that they will not receive the retirement plan contributions (or the option to save in a plan) nor will they get the foregone contributions as additional salary.
The SBCA noted there are also principles of fairness in play, particularly for older Americans who have saved in retirement plans for years and will be informed that the tax treatment available to their children has suddenly been drastically changed for the worse. To lessen this unfairness, the SBCA urged Congress to, at a minimum, provide children with at least 20 years to remove funds from an inherited plan in order to be able to spread out the income taxation.
The SBCA is a national nonprofit organization which represents the interests of more than 100,000 privately-held and family-owned organizations exclusively on Federal tax, employee benefit and health care matters.
SOURCE Small Business Council of America