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Tax proposal has silver lining for IRAs, Social Security and capital loss limits

House bill would hike required age of account distributions to 75

By Joseph W. Walloch

June 16, 2009 10:04 am ET

Situation: When your clients ask whether anything good will come out of proposed tax legislation, you can point to a House bill that offers a silver lining in the looming dark clouds of proposed tax increases.

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Solution: 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 .

Another bill, HR 883, proposes to repeal the 1993 increase in income taxes on Social Security benefits. The 1993 increase added the provision that required up to 85% of Social Security benefits to 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 The 85% inclusion rate would be repealed.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.

In the Senate, S 978 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.

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