As Democrats in Congress continue negotiations on their social spending bill, several retirement provisions have been added back to the conversation.
President Joe Biden on Oct. 28 unveiled a framework for the $1.75 trillion Build Back Better Act, which would make investments in clean energy, expand Medicare and establish universal prekindergarten, among other items. That framework, which was cut from the original $3.5 trillion price tag, did not include any retirement provisions that Democrats floated in recent months. But the House version of the bill, text for which was posted Wednesday by the Rules Committee, included a few retirement provisions that were cut from last week's framework.
The bill under consideration in the House 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, according to a bill summary posted by the Rules Committee.
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.
Whether the retirement items make it into the final version of the bill remains to be seen.
Democrats, who narrowly control the House and Senate, are aiming to pass the Build Back Better Act via reconciliation, meaning they need only a simple majority in the Senate instead of the usual 60 votes. No Republicans are expected to vote in favor. A vote on the package and a separate vote in the House on a bipartisan infrastructure bill that the Senate passed in August have not been scheduled but could come soon.
