What Is Congress Doing To Retirement Accounts?

Here are some of the worst proposals currently on the table.

IRA accounts will not be allowed to invest in anything based on account holder’s status.

That applies to investments that require “accredited investor” status, certain financial credentials, or a minimum net worth, such as many private investments (i.e not publicly listed companies). You have two years to get out of current investments that violate this rule.

The IRA will also be prevented from investing in anything in which the owner has 10% or larger ownership, or is an officer.

This is terrible for Self-Directed IRAs — more on these below. Fortunately, it does not currently apply to 401(k)s.

Restrictions on Roth funding and conversions

The Roth structure allows after-tax contributions to retirement plans which then grow tax free. Since you paid taxes up front, you do not owe taxes on distributions, even if the value has grown substantially from good investments.

Congress is proposing to prohibit any after-tax contributions to Roth structures in workplace plans, and ban converting after-tax money paid into a regular plan into a Roth plan (this tactic can currently help avoid Roth contribution limits).

It would also ban ALL Roth conversions for workplace plans for singles who make over $400,000 per year, and couples who make more than $450,000 — but this would not go into effect until after December 31, 2031.

Converting to Roth triggers a taxable event, meaning you pay the taxes on the account now and not on distributions. This can be preferable if you think your investments will grow enough that you would owe more taxes later on distributions than you would owe currently if the account value was taxed today.

Contribution Limits and Minimum Required Disbursements

According to the House Ways and Means summary, “the legislation prohibits 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 generally exceed $10 million as of the end of the prior taxable year.”

This applies “to single taxpayers (or taxpayers married 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 (all indexed for inflation).”

Under those circumstances, the owner of the account would be forced to take a 50% distribution of the combined value of all applicable plans over $10 million (i.e. if the accounts have $11 million total, the minimum required distribution is $500,000).

It becomes even more restrictive if the accounts exceed $20 million in value.

What this means:

This all translates into less choice and flexibility for individuals planning their retirements.. – READ MORE