October 22, 2021

Congress Considering Several IRA Proposals

Congress proposed several changes to the IRA rules as part of the budget reconciliation bill and Securing a Strong Retirement Act of 2021.


If signed into law in its current form, the proposed Build Back Better Act would impose several restrictions on IRAs including:


  • Closing the back-door Roth IRA conversion loophole by prohibiting the conversion of after-tax IRA funds and eliminating Roth IRA conversions for high-income taxpayers making $400,000 to $450,000 depending on tax-filing status.

  • Significantly increasing required minimum distributions for high-income taxpayers with very large total IRA and company retirement plan balances (generally $10 million) and prohibiting certain IRA investments for wealthy IRA owners (e.g., accredited investors).


In addition, if signed into law in its current form, the proposed Securing a Strong Retirement Act of 2021 would:


  • Increase the required minimum distribution (RMD) age to 73 on January 1, 2022; to age 74 on January 1, 2029; and to age 75 on January 1, 2032.

  • Subject the IRA catch-up contribution limit to cost-of-living adjustments.

  • Limit the repayment of qualified birth or adoption distributions to three years.

  • Limit cessation of an IRA to only the portion of the account involved in a prohibited transaction.  Therefore, only the portion of IRA funds used in a prohibited transaction would be treated as a distribution.

  • Allow for SIMPLE and SEP Roth IRAs, which would let employees treat employee and employer SEP and SIMPLE contributions as after-tax Roth contributions.

  • Reduce the excess accumulation penalty for missed RMDs.


The proposed Securing a Strong Retirement Act of 2021 would also expand the Employee Plans Compliance Resolution System (EPCRS) to include certain IRA errors: 


  • May allow for waiver of the excess accumulation penalty for a missed RMD.

  • May allow for a waiver of the 60-day rollover deadline where the deadline is missed for reasons beyond the reasonable control of the IRA owner.

  • Would allow nonspouse beneficiaries to return distributions from inherited IRAs due to an inadvertent error by a service provider (e.g., the beneficiary had reason to believe that the distribution was rollover eligible).