Financial Roundup: Tax Loopholes, 401(k)s and IRAs, and Health of the Economy

Closing Loopholes

A proposed U.S. Treasury Department and Internal Revenue Service (IRS) plan would make it more difficult for business owners to transfer assets to heirs without paying estate and gift taxes. The plan would place new limits on a common technique to transfer interests in illiquid businesses.

The procedure of discounting the value of fractional interests in closely held businesses or land, which allows wealthy families to pack assets inside the $10.9 million lifetime exclusion from estate and gift taxes, is the target of the proposed regulations.

Taxpayers who take advantage of the current system end up paying less than they should in estate or gift taxes, according to Mark Mazur, the assistant secretary for tax policy. By changing how the IRS examines restrictions on an individual’s right to liquidate business interests, the proposal could make it tougher for taxpayers to claim valuation discounts.

Planning and Investing

According to a report by Fidelity Investments, individual retirement account and 401(k) balances increased quarter-over-quarter in the first half of 2016, but fell from the year-earlier period. The average 401(k) balance of $88,900 at the end of the second quarter was up 2% in the first quarter, but down 2.5% over the year. The average IRA balance of $89,700 was up slightly from the first quarter, but 7% lower than it had been in 2015’s second quarter.

Fidelity’s analysis was based on 22,000 corporate defined contribution plans with 14.2 million participants. These figures included the advisor-sold market, but excluded the tax-exempt market, plus nonqualified defined contribution plans for Fidelity’s own employees, according to the company. The IRA analysis was based on 8.2 million IRA accounts.

Health of the Economy

The U.S. labor market continued promising expansion in July, adding 255,000 jobs. The steady pace of hiring and stronger consumer appetites paint a brighter picture of the economic outlook in comparison to global uncertainties. Another month of solid job growth in August could alleviate the Federal Reserve’s fears and point to an interest rate hike following their September meeting.

Despite the report, however, some experts still expect the market to slide into a recession later this year. One concern is that while jobs are added on the high- and low-ends, there are not as many opportunities in the middle.

Estate Planning & Tax Preparation with Cohen & Burnett

Cohen & Burnett is a prominent and renowned Estate Planning and Estate Administration Law Firm that has served the Washington DC metro area for over 25 years. To learn about our legal planning, tax strategy, and estate planning services, please visit our homepage.

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