Important news regarding the proposed bill has been released. Yesterday, the House Rules Committee released a new version of the reconciliation bill, which re-adds numerous retirement provisions – ones that were temporarily removed last week. Some of these return with modifications.
The two provisions of most concern to self-directed IRA holders (sections 138312 and 13814) are not in the latest version under consideration in the House. As the bill continues to be reviewed and reworked, it’s important to understand that things can still change as the bill continues to move forward, but this is a strong sign that we’re being heard.
The following summary was provided by the Retirement Industry Trust Association (RITA):
OUT OF THE BILL
- The provision prohibiting IRAs from investing in securities where the owner must be an accredited investor has been removed.
- The provision prohibiting IRAs from holding more than 10% of a non-public security or an officer, director etc. of a company owning those company’s securities in the IRA has been removed.
- The mandatory auto IRA provision (which would have required most business to offer a plan or auto IRA savings arrangement), associated employer credits, and Saver’s Credit provisions have been removed.
BACK IN THE BILL
- The $10 million cap on IRA/DC plan balances is back in the bill, with the following changes.
- The effective date has been pushed back to 2029. There continues to be no grandfather (although see change to nonqualified Roth distributions, in next bullet).
- Distributions from Roth accounts required by reason of the proposal are deemed to be qualified distributions, so that earnings are not taxed even if the individual is under 59 ½ or has had the Roth account fewer than 5 years.
- The provision regarding plan amendments was removed (no longer needed because of the pushback of the effective date).
- Two changes were made to the rules for plans. First, with respect to the rule requiring plans to report balances above $2.5 million, Roth and non-Roth amounts are reported separately, only vested amounts must be reported, and beneficiary accounts are also reported. Second, the bill clarifies that a beneficiary of a plan account can request a distribution from the plan if needed to comply with the cap, just like a participant.
- Under a change from the prior version, rollovers from Roth plan accounts or Roth IRAs to Roth IRAs are treated as “annual additions” (i.e. contributions) to a Roth IRA for purposes of the restrictions for those over the cap. Although this change likely requires more study, we understand the reason for this change is that Roth IRAs are not subject to the required minimum distribution rules, so the rule in the bill precluding rollovers of excess amounts would not preclude rollovers of required Roth IRA distributions. To address this, the bill now treats rollovers from Roth IRAs and Roth plan accounts to Roth IRAs as contributions subject to this prohibition.
- To address issues associated with ESOPs, the bill generally now provides that amounts required to be distributed because of the cap are not allocated to ESOPs holding securities not traded on an established securities market, other than amounts rolled into ESOPs after enactment.
- There are a few other clarifying technical changes.
- The provision eliminating Roth conversions of after-tax amounts in 2022 and all conversions for higher income individuals in 2032 is back in the bill. The provision is unchanged from the Ways and Means version.
- A provision creating a six-year statute of limitations for IRAs in certain cases is back in the bill.
- A provision treating IRA owners and beneficiaries (if owner has died) as disqualified persons for purposes of prohibited transaction rules is back in the bill.
- A provision prohibiting IRAs from investing in DISC and FSC entities continues to be in the bill. (It wasn’t removed in the last version.)
This is a step in the right direction, but with many of these provisions being re-added, it shows us that there is still much to be done to protect the future of self-directed IRA investing. If you’d like to read a copy of the most recent version of the bill, it is available here beginning on page 1896: