After 40 hours of debate, over a four-day period, the House Ways and Means Committee has approved a proposal to be submitted to the House Budget Committee for mark-up. This proposal which would make up a portion of the Build Back Better Act includes several retirement plan and IRA provisions. If enacted, as currently written, the following would be included.
- Requires certain employers without an employer-sponsored retirement plan to automatically enroll their employees in an automatic IRA plan or other retirement arrangement.
- Establishes a new type of stand-alone 401(k) plan, which meets certain requirements relating to ADP testing, automatic enrollment, elective contributions, and employee notices.
- Modifies the nonrefundable income tax credit for qualified startup costs of an eligible small employer that adopts an eligible employer plan.
- Modifies the saver’s credit to create a refundable tax credit of up to $500 (adjusted for inflation), based on a percentage of the contributions made by the taxpayer to a retirement account. The taxpayer would designate the retirement account to which the credit would be paid as a contribution.
- Amends the deadline for IRA contributions made with direct deposit of the taxpayer’s federal income tax return.
- Prohibits amounts held in non-Roth accounts in an employer-sponsored retirement plan or non-Roth IRA from being converted to a Roth IRA or a designated Roth account by taxpayers with adjusted gross income in excess of $400,000-$450,000 depending on tax filing status (effective for taxable years beginning after December 31, 2031).
- Prohibits “back-door Roth IRAs” (i.e., amounts held in non-Roth accounts in an employer-sponsored retirement plan or non-Roth IRA from being converted to a Roth IRA or a designated Roth account if any portion of the distribution that is being converted consists of after-tax contributions (effective for taxable years beginning after December 31, 2021)).
- Prohibits further contributions to a Roth or Traditional IRA for a taxable year if the combined total value of an individual’s IRAs and defined contribution retirement accounts generally exceeds $10 million as of the end of the prior taxable year, and the individual has income that exceeds the applicable limits (i.e., $400,000 – $450,000 depending on tax filing status).
- New annual reporting requirement to both the IRS and plan participants for employer defined contribution plans on aggregate account balances in excess of $2.5 million.
- Creates required distributions for account owners whose income exceeds $400,000-$450,000 (depending on tax filing status) and whose aggregate account balances (i.e., IRAs and defined contribution plans) exceed $10,000,000. In addition, if aggregate balance of all retirement accounts exceeds $20,000,000, the excess over $20,000,000 must be distributed from Roth accounts until such time the balances no longer exceed $20,000,000, or Roth assets are depleted.
- Expands the statute of limitations for IRA noncompliance related to valuation-related misreporting and prohibited transactions from three years to six years.
- Prohibits the investment of IRA assets in investments that are not tradable on an established securities market in which the IRA owner has a substantial interest (10 percent or more) or is an officer or director.