I actually missed SOTU and have been catching up with the proposals. Some that struck me personally as concerning are:
Proposed changes to 529 plans -
I think that this does present a strong case for the use of direct to education funding methods and sidestepping the 529, but that doesn't help a whole lot when it comes to those already funded.
Additionally, there is talk of closing the step up basis 'loophole'
Other than these, I saw a lot of positive changes that looked good. Do any of you have concerns about the proposals, or plans to deal with them should they pass?
Proposed changes to 529 plans -
As I understand it, this rollback would potential make qualified 529 distributions (AKA college and related expenses) taxable. While they say the money would still grow tax free. I'll have to explore that further.
- Limit upside-down education savings incentives and consolidate them into a single benefit. The President’s plan would consolidate education savings incentives into one vehicle and redirect the savings into the better targeted AOTC. Specifically, the President’s plan will roll back expanded tax cuts for 529 education savings plans that were enacted in 2001 for new contributions, and – like Chairman Camp’s tax reform plan – repeal tax incentives going forward for the much smaller Coverdell education savings program.
I think that this does present a strong case for the use of direct to education funding methods and sidestepping the 529, but that doesn't help a whole lot when it comes to those already funded.
Additionally, there is talk of closing the step up basis 'loophole'
Sourced from WhiteHouse.govThe largest capital gains loophole – perhaps the largest single loophole in the entire individual income tax code – is a provision known as “stepped-up basis.” Stepped-up basis refers to the fact that capital gains on assets held until death are never subject to income taxes. Not only do bequests to heirs go untaxed, but the “tax basis” of inherited assets used to compute the gain if they are later sold is immediately increased (“stepped-up”) to the value at the date of death – making the capital gain income forever exempt from taxes. For example, suppose an individual leaves stock worth $50 million to an heir, who immediately sells it. When purchased, the stock was worth $10 million, so the capital gain is $40 million. However, the heir’s basis in the stock is “stepped up” to the $50 million gain when he inherited it – so no income tax is due on the sale, or ever due on the $40 million of gain. Each year, hundreds of billions in capital gains avoid tax as a result of stepped-up basis.
Other than these, I saw a lot of positive changes that looked good. Do any of you have concerns about the proposals, or plans to deal with them should they pass?