Retirement Savings and Tax Policy
The U.S. retirement system, along with the workers and retirees it is designed to support, faces significant challenges. With workers now primarily responsible for making investment decisions and planning for their futures, the need for fiduciary advice is more critical than ever.
The IAA strongly supports tax and retirement policies that enhance Americans’ ability to save and invest for retirement. This includes expanding access to retirement plans to increase participation in the system. The IAA advocates for policies that encourage retirement savings and facilitate access to fiduciary advice. We oppose any policies that would unfairly increase costs for retirement savers. Additionally, we believe investors should have access to a diverse range of investment products and strategies to meet their retirement goals.
The IAA urges Congress to restore and expand the deductibility of advisory fees as an itemized deduction, incentivizing taxpayers to seek professional advice for retirement planning. We also recommend allowing service businesses, like investment advisers, to benefit from the 20 percent pass-through deduction created by the 2017 Tax Cuts and Jobs Act (TCJA), as not doing so disproportionately disadvantages small investment advisers.
SECURE Act 2.0
The IAA supported the passage of the SECURE Act 2.0 in the previous Congress. The IAA advocates for expanding incentives to encourage more employees to participate in retirement plans. Additionally, we support increasing the age for Required Minimum Distributions (RMDs) from retirement plans and enhancing investment flexibility for sponsors of 403(b) plans (plans for government and non-profit employees), including allowing investments in collective investment trusts (CITs) similar to what is allowed in 401(k) plans. The IAA also supports disclosure reforms, such as permitting broader use of electronic delivery.
Rothification
The IAA strongly opposes proposals to mandate “Rothification,” which would limit or eliminate pre-tax contribution options and require after-tax contributions to retirement plans. These measures risk discouraging savings and weakening the effectiveness of the private retirement system. Policymakers should instead focus on initiatives that strengthen and improve this system, encouraging greater savings and promoting long-term financial security for all Americans.
Advisory Fee Deductibility
Financial professionals, including fiduciary investment advisers, are working diligently to help taxpayers make informed decisions about their finances. Access to professional financial advice provides significant immediate benefits, particularly during times of economic uncertainty.
In recognition of the value of professional investment advice, Congress previously allowed a limited tax deduction for such services. However, this deduction was repealed by the TCJA in 2017. The IAA strongly advocates for the restoration of this tax deduction for investment advisory fees, with the elimination of the 2 percent Adjusted Gross Income (AGI) threshold. This threshold, which limited deductions to fees exceeding 2 percent of a taxpayer’s AGI, disproportionately benefited upper-income households.
All taxpayers should have access to the critical financial advice they need, and the IAA supports efforts in Congress to make this deduction available to all American households, regardless of income.
Pass-Through Benefit
Section 199A of the TCJA provides a 20 percent deduction on qualified business income for owners or shareholders of pass-through businesses, such as S corporations, partnerships, and sole proprietorships. However, owners and shareholders of “specified service trades or businesses” face limitations on this deduction if their overall taxable income exceeds certain thresholds. Unfortunately, investment advisers, financial planners, and other financial professionals are currently classified under this provision.
This definition unfairly disadvantages these businesses by limiting their ability to reinvest and grow, while other industries – such as real estate and insurance brokers – are able to fully benefit from the 20 percent pass-through deduction.
The IAA believes it is sound policy to allow investment advisers and other financial professionals to fully benefit from this deduction. We urge Congress to address this issue through clarifying legislation, ensuring that these professionals can qualify for the full pass-through benefit.
The IAA collaborates with policymakers to address these and other issues, advocating for sound tax and retirement policies that make it easier for Americans to save for the future.