WisBusiness: Panel looks at updating state retirement account rules

By Greg Bump


A bill to eliminate the $100,000 income ceiling for converting traditional retirement accounts to Roth IRAs is a good start, the head of a state financial advisor group said Tuesday.


But Mark Miehe, president-elect of the National Association of Insurance and Financial Advisors in Wisconsin, urged lawmakers on the Assembly Committee on Jobs, the Economy and Small Business to go further in making the state a better environment for retirement savings.


If passed, the bill would bring Wisconsin in line with federal standards, a move every state other has already made.


“With the constant litany of articles in the national media and the fact that even some tax advisers may not be aware of Wisconsin’s failure to modernize these provisions, I predict it will result in penalties for many unless it is corrected,” Miehe said.


Committee Chair Louis Molepske, the bill’s author, said the legislation is important because some Wisconsin residents who may have been following the change in federal rules could be surprised with substantial penalties if they convert their retirement accounts.


The change in state law was proposed in Gov. Jim Doyle’s 2009-11 state budget, but there was some disagreement over the fiscal impact of the bill, said Molepske, D-Stevens Point. Molepske said there has since been a “meeting of the minds” over the fiscal effect.


State revenues under the change are expected to increase by $1 million in the 2011 fiscal year and $1.5 million in 2012, but would drop by $1.7 million in 2013, according to a fiscal estimate from the Department of Revenue.


The bill also includes provisions relating to retirement account tax treatment for members of the military, among them allowing members of the National Guard and reserves to make IRA withdrawals without penalty if called to active duty and allowing reservists on active duty to withdraw from health flexible spending accounts without penalty.


An executive session is set for next Tuesday in Molepske’s committee. A public hearing is set for Jan. 20 in the Senate Committee on Veterans and Military Affairs, Biotechnology and Financial Institutions, which is chaired by the bill’s co-author, Sen. Jim Sullivan, D-Wauwatosa.


The bill will also go through the Joint Committee on Tax Exemptions and Joint Finance Committee before it gets to the Legislature, Molepske said.


James Buchen, vice president of government affairs for Wisconsin Manufacturers & Commerce, said Wisconsin has a reputation as unfriendly to retirees, and that people are “getting out of the state as fast as they can when they’re done working” and companies have trouble recruiting higher income workers because of the state’s tax environment.


Like Miehe, Buchen also said the bill doesn’t go far enough and not incorporating other changes in federal standards into Wisconsin law “makes Wisconsin look hostile” toward retirees.


Miehe urged the committee to amend the bill adopt changes made in the federal Pension Protection Act that go into effect next year. For instance, unless changes are made to Wisconsin law, contribution limits to IRAs will be rolled back to pre-2001 levels. That would mean a maximum contributions of $2,000 while the federal limit increases to $5,000 or $6,000 for individuals over age 50.


“It is incumbent on the Legislature to keep Wisconsin’s tax treatment of retirement savings accounts up to date so that Wisconsin savers are not penalized for the same transactions and amounts that people in other states can accomplish tax-free,” Miehe said.


But Molepske said after the meeting that he’s wary of amending the bill without making sure changes won’t erode support for the legislation.


“I’m not opposed to it, but I just need to make sure that if we were to amend the bill the whole thing doesn’t die because we can’t make it work” in JFC and the Joint Committee on Tax Exemptions, Molepske said. “That’s the big unknown at this point. I think the bill as written should go through.”