Long-Term Planning Implications of the Tax Increase Prevention and Reconciliation Act of 2005

Kitces, Michael E.
February 2007
Journal of Financial Planning;Feb2007, Vol. 20 Issue 2, p48
Academic Journal
Executive Summary. • The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA, signed in May 2006) was a $70 billion tax cut with numerous direct implications for financial planners and their clients. This article highlights several key long-term provisions that will have an impact on financial planning clients in the coming years, and describes the planning implications and opportunities of the provisions. • TIPRA's extension of the tax-favored qualified dividend and long-term capital gains rates provides substantial additional planning opportunities, particularly with the extension of 0 percent capital gains rates for lower tax brackets. • Advance planning will be helpful to take advantage of TIPRA's repeal of the income limit for Roth conversions, although care must be taken when using the new two-year income-averaging provisions applicable in 2010. • New municipal bond income reporting requirements from TIPRA may alter the municipal bond investment behavior of Social Security recipients, as well as those affected by the alternative minimum tax. • TIPRA's change of the age limits for the so-called "kiddie tax" may shift long-term planning for intra-family wealth among children, in addition to causing additional unintended consequences. 529 plan and Coverdell education savings accounts will likely become more attractive to such affected families.


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