The Build Back Better Act would close so-called backdoor Roth IRA strategies by prohibiting all employee after-tax contributions in qualified plans and after-tax individual retirement account contributions from being converted to Roth regardless of income level. It would also eliminate Roth conversions for both IRAs and employer-sponsored plans for single taxpayers (or taxpayers married but filing separately) with taxable income over $400,000, married taxpayers filing jointly with taxable income over $450,000 and heads of households with taxable income over $425,000.
Moreover, the bill would prohibit further contributions to a Roth or traditional IRA for a taxable year if the total value of an individual's IRA and defined contribution retirement accounts exceeds $10 million. The limit on contributions would apply to single taxpayers with taxable income over $400,000, married taxpayers filing jointly with taxable income over $450,000 and heads of households with taxable income over $425,000.
Also, if an individual's combined traditional IRA, Roth IRA and defined contribution retirement account balance exceeds $10 million at the end of a taxable year, a minimum distribution would be required for the following year. The minimum distribution generally is 50% of the amount by which the individual's prior-year aggregate traditional IRA, Roth IRA and defined contribution account balance exceeds the $10 million limit, with certain caveats.
The bill would also add a new annual reporting requirement for defined contribution plan sponsors on aggregate account balances exceeding $2.5 million. The reporting would be to both the IRS and the plan participant whose balance is being reported.
The Build Back Better Act now heads to the Senate where it could be amended further. Democrats, who narrowly control the House and Senate, are aiming to pass the bill via reconciliation, meaning they need only a simple majority in the Senate instead of the usual 60 votes. No Senate Republicans are likely to vote in favor with a vote expected in the coming weeks.
"At last, we are sending the Senate a once-in-a-generation package to invest in our nation's workers, families, and economy," House Ways and Means Committee Chairman Richard Neal, D-Mass., said in a statement. "We fought hard to keep key provisions like paid family and medical leave in the legislation because we cannot build back better until we recognize the needs of workers outside of the workplace.
"Each individual measure in this bill has the potential to change lives, and when taken together, these investments will transform our country for the better."
