A subtle but highly controversial provision of the Senate's version of the tax reform bill that would increase the capital gains exposure for millions of retirees has been pulled from the reconciled tax bill, according to a source speaking on background.
The so-called first-in-first-out or FIFO provision would have required owners of individual stocks to sell the longest held shares before more recently acquired shares.
Under existing law, retirees and other investors have the option of selling more recently acquired shares first.
Recommended For You
The longest held—or first in shares—have had more time increase in value, and typically a higher cost basis, meaning a higher level of profit on which capital gains taxes are assessed.
In some circumstances, retirees can sell more recently acquired shares at a loss, and apply the difference against capital gains on the sales of other equities. Under the Senate's proposal, that option would be effectively eliminated.
An inquiry to staffers on the House Ways and Means Committee was not returned before press time.
A 2014 Gallup survey showed 11 percent of retirees derive a significant amount of retirement income from individual stock or stock mutual funds.
Timothy Slavin, senior vice president for retirement at Broadridge, said the magnitude of the issue has sent shockwaves through the brokerage industry.
"It's like the DOL (fiduciary) rule all over again," said Slavin, referring to reactions from brokerage clients of Broadridge. "But at least on the DOL rule there was a way forward. This new provision is happening in a matter of days. We need more clarity. I don't think Congress has thoroughly thought this through."
Slavin said brokerages' back office system rebuilds would be enormous to accommodate the provision, which would take effect at the beginning of the New Year under the Senate bill. The Joint Committee on Taxation says the provision would raise $2.4 billion in tax revenue over 10 years.
Sarah Simoneaux, a retirement plan consultant and founding partner of New Orleans-based SCS Consultants, said the issue has been "heavily lobbied" by industry.
But she expressed concern that time and budgetary constraints were working against industry efforts to have the provision removed.
"There may not be time," Ms. Simoneaux told BenefitsPRO. Neither she nor Slavin had heard reports that the provision has been pulled.
The reconciled tax bill is expected to be released Friday. On Thursday, Sen. Marco Rubio, R-FL, said his support for the bill was conditioned on a more generous child tax credit.
If the first-in, first-out provision is scrapped, and Sen. Rubio is accommodated—Republicans cannot afford to lose his vote—revenue will have to be raised in other areas to meet the $1.5 trillion deficit cap on the bill.
Other news outlets are reporting that the final bill will raise the corporate rate from 20 percent to 21 percent.
Ms. Simoneaux said her comfort level is "pretty good" that lawmakers won't tap pre-tax contributions on qualified retirement plans to add revenue to the bill.
"The message has gotten through to Congress. 401(k)s are the way Americans save for retirement. They are a tax deferral, not a deduction. We all will pay taxes on our 401(k)s when we take money out," she said.
Ms. Simoneaux credits Brian Graff, CEO of the American Retirement Association, for leading the lobby initiative to preserve tax preferences on qualified retirement plans.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
