TAX ALERT |
Authored by RSM US LLP
Social and climate costs bring back IRA proposals
The House of Representatives released another revision to their social and climate spending bill as they prepare for a vote. Democrats in the House have been blocking passage of the $1 trillion infrastructure bill that passed the Senate until there’s a vote on the social and climate package. Passage of the social and climate package would result in the progression of the bill to the Senate. There will likely be additional changes once it reaches the Senate. These changes may require another House vote.
A summary of the original proposals potentially impacting IRA/Roth IRAs and other types of retirement plans was previously published on Sept. 29, 2021. These proposals were removed entirely from an interim bill, but the latest re-write has added back certain IRA/Roth IRA provisions, as negotiations continued with some of these changes now having a later effective date. A summary of what is included and what remains removed is provided below.
What IRA/Roth IRA changes are back in?
- Contribution limits for high-income taxpayers (taxpayers with income above specified thresholds) that also have applicable retirement accounts with an aggregate vested balance in excess of $10 million. The effective date for this limitation would now be tax years beginning after Dec. 31, 2028.
- An additional required minimum distribution (RMD) requirement for high-income taxpayers if the individual has applicable retirement accounts with an aggregate vested value in excess of $10 million. The effective date for this provision would now be tax years beginning after Dec. 31, 2028.
- Conversion of after-tax amounts from either an IRA or retirement plan to a Roth IRA or Roth designated account would not be allowed for tax years beginning after Dec. 31, 2021. In addition, conversions to Roth IRAs by high-income taxpayers would be prohibited from both IRAs and retirement plans for tax years beginning after Dec. 31, 2031.
- Prohibited transaction rules under section 4975 clarify that the IRA owner is always a disqualified person and the statute of limitations for valuation related misreporting or prohibited transactions would increase to six years. These provisions would be effective for transactions occurring after Dec. 31, 2021.
What was removed?
- The previous version included rules prohibiting IRAs or Roth IRAs from investing in certain assets that was not added back to the most recent version of the bill. The original Ways & Means language included the prohibition on investments for which the issuer requires a specified minimum amount of income or assets, education level, or specific licenses or credentials. It also prohibited investments in non-publicly traded companies for which the IRA owner holds a 10% or greater interest.
The current political landscape has proven to be challenging for lawmakers. The overall impact of these provisions making their way back in would hit some high-income taxpayers but provide a longer time frame for planning before the contribution and RMD restrictions take effect. While the current version does not include the prohibition on an owner of a company owning company shares in his or her IRA, even the prohibited transaction rules currently in the Internal Revenue Code can make it difficult to get ownership of an owner’s company into the owner’s or other family member’s IRA or Roth IRA. In addition, even under the current Code rules there are valuation issues to be considered. Some care needs to be taken before trying to have an IRA or Roth IRA invest in a company with family ownership or other relationships to the IRA owner.
It is likely that additional revisions will be made before this bill becomes enacted law. RSM will provide further updates as they become available.
Questions or Want to Talk?
Call us directly at 972.221.2500 (Flower Mound) or 940.591.9300 (Denton),
or complete the form below and we’ll contact you to discuss your specific situation.
This article was written by Karen Field, Tandilyn Cain and originally appeared on 2021-11-05.
2021 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
KHA Accountants, PLLC is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.
For more information on how KHA Accountants can assist you, please call 972.221.2500.