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Strong Retirement System, Sound Tax Policy

Retirement Savings/Tax

The U.S. retirement system – and the workers and retirees it was meant to benefit – face major challenges. Workers are now largely on their own in making investment decisions and planning for their futures, making the need for fiduciary advice even more crucial. Improvements are needed to better ensure a secure and adequate retirement for all Americans. The IAA strongly supports tax and retirement policy that bolsters Americans’ ability to save and invest for retirement, including efforts to increase participation in the retirement system by expanding access to retirement plans. The IAA believes that such policies should incentivize investors to save for retirement and to gain access to fiduciary advice. We oppose policies that would unfairly raise costs for retirement savers. We also believe that investors should have access to the wide range of investment strategies they want and need to meet their retirement investing goals.

The IAA believes that Congress should restore and expand the deductibility of advisory fees as an itemized deduction to incentivize taxpayers to seek advice about saving for retirement. We also believe that Congress should revise the broad exclusion for service businesses from the 20 percent pass-through deduction created by the 2017 Tax Cuts and Jobs Act as it unfairly disadvantages investment adviser. The IAA also strongly opposes a financial transaction tax because of the unfair financial burden it would impose on investors, retirement savers, and the securities markets.

SECURE Act 2.0

The IAA supported passage of the SECURE Act in the last Congress and supports enactment of SECURE Act 2.0  in the current Congress. Among other things, the IAA believes Congress should expand incentives for employees to participate in retirement plans. In addition, we support further increasing the age for RMDs and expanding investment flexibility for 403(b) plan sponsors, including allowing them to invest in collective investment trustss. The IAA also supports disclosure reforms, including permitting greater use of electronic delivery.

Advisory Fee Deductibility

Americans are coming out of  an and financial professionals – including the nation’s fiduciary investment advisers – are working hard to help American taxpayers make wise decisions about their finances. These American savers realize tremendous immediate benefits when they have access to professional financial advice to help them manage their finances, especially important in  turbulent times.

Congress recognized the value of professional investment advice by providing a limited tax deduction for those services (26 U.S.C. § 212), repealed in 2017 by the Tax Cuts and Jobs Act (TCJA). Congress should now restore the tax deduction for investment advisory fees, deleting the 2 percent Adjusted Gross Income (AGI) threshold that was part of it. This threshold, which permitted tax deductions only to the extent they exceeded 2 percent of a taxpayer’s AGI, unfairly narrowed the benefit to upper-income households. All taxpayers should obtain the critical financial advice they need now and the IAA strongly supports efforts in Congress to make this deduction available to all American households regardless of income.

Pass-Through Benefit

Section 199A of the TCJA created a 20 percent deduction on qualified business income for owners/shareholders of pass-through businesses, such as S corporations, partnerships, and sole proprietorships. However, owners and shareholders of “specified service trades or businesses” are limited in their ability to apply the 20 percent deduction if their overall taxable income exceeds low thresholds. Unfortunately, investment advisers, financial planners, and other financial professionals currently fall under this provision.

The present definition unfairly disadvantages these businesses, diminishing their ability to invest in and build their businesses while others, including real estate and insurance brokers, are able to benefit from the 20 percent pass-through deduction.

The IAA believes it is sound policy to allow these business owners to fully benefit from this deduction and urges Congress to resolve via clarifying legislation that investment advisers and the other financial professionals currently excluded can fully qualify for this deduction.

Financial Transaction Tax

The IAA strongly opposes a Financial Transaction Tax (FTT) as it would increase the costs to investors, negatively affecting their ability to save for retirement, college, homeownership, and other goals. The tax would also increase the cost of capital, depress returns on investment, and harm securities markets. Other jurisdictions that have adopted these taxes have not reaped the expected benefits and have experienced negative .

The IAA works with policymakers on these and other issues to ensure sound tax and retirement policies that will make it easier for Americans to save for retirement.

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