High incomes could see congressional retirement investment changes


Congress is considering drastic changes to traditional and Roth individual retirement accounts, including mandatory distributions once the accounts reach a certain size. The changes target the highest-earning Americans who have multi-million dollar retirement accounts.

All of this assumes that the proposals, which were included in an amendment to President Biden’s $ 3.5 trillion budget reconciliation package, are passed. They were introduced in September by U.S. Representative Richard Neal, D-Mass., Chairman of the House Ways & Means Committee.

A change highlighted by law firm Ropes & Gray would require people with $ 10 million or more in 401 (k) style combination work plans as well as traditional and Roth IRAs to start withdrawing money . Non-Roth account holders must already make the required minimum distributions from age 72, but this proposal could be more drastic and would not be based on age.

“The minimum payout is typically 50% of the amount by which the previous year’s Traditional IRA, Roth IRA, and Defined Contribution account balance exceeds the $ 10 million limit,” Ropes & Gray explained in a summary.

It and various other changes would apply to higher income investors (singles with taxable income over $ 400,000 and married spouses earning over $ 450,000). Another provision would prohibit higher income earners from making “stolen” investments in Roth IRAs. As it is, singles with incomes over $ 140,000 or joint filers earning over $ 208,000 cannot contribute directly to a Roth. But indirectly, anyone could make a non-deductible contribution to a traditional IRA and then convert that after-tax contribution to a Roth to ensure future income grows tax-free.

This provision would likely end the practice, although it would not come into effect until 2032. However, several of the other changes could begin next year.

Among other changes, the Neal Amendment would also prohibit high-income people with at least $ 10 million in IRAs and 401 (k) type plans from investing new money in these types of accounts. This would be a change from the current law, where high net worth investors are prohibited from paying new money based on their income, but not based on their account balances. In addition, the proposal would require employers to report participant balances in 401 (k) type accounts greater than $ 2.5 million to the IRS.

These and other possible changes are designed to reduce mega IRAs and discourage the wealthy from using tax-sheltered accounts as much as they currently do. But the proposals would not affect the vast majority of Americans.

According to a study released earlier this year by the Investment Company Institute, only 37% of households own one or more IRAs, and only 12% of households contribute new money in any given year. On the contrary, renewals of 401 (k) style plans have fueled most of the growth in IRAs, which overshadow 401 (k), repo and other types of accounts as the most important component of the U.S. market. retirement of $ 37,200 billion, according to the institute.

Another way to get answers from the IRS

Reaching the IRS by phone or mail is not easy, especially after the COVID-19 pandemic has disrupted operations. But there is a less obvious way to verify certain aspects of your tax situation: by requesting a tax transcript.

The IRS provides several types of these documents upon request at no cost. They can be used to verify that you have made or received certain payments, for example, and to verify other details.

National taxpayer lawyer Erin Collins recently reminded taxpayers of the transcription option for answers to questions that have persisted due to long wait times on the phone and inability to reach a person live .

Transcripts have many uses such as validating income and tax return status for mortgage applications and student loans, providing useful information for filing an amended return and verifying tax payments. estimates have been received or stimulus payments made. They can also check when the IRS received a tax return and payment history.

Taxpayers can request transcripts in several ways, such as through the online Get Transcript portal on irs.gov, by mail, or by calling the IRS at 1-800-908-9946.

Collins suggests creating an account online to get transcripts, although you must provide personal identifying information before the IRS will authenticate your account.

Some energy credits expire

The federal government has offered tax credits to promote energy efficiency for years. But a few of those tax breaks are expected to expire at the end of this year or quite soon after, noted tax researcher Wolters Kluwer Tax & Accounting.

For example, individuals can take advantage of a non-commercial energy tax credit, a tax break that is due to expire at the end of 2021. Through it, homeowners can receive a lifetime credit of $ 500 for 10 % of the cost to make certain energy efficiency improvements. components of the primary residence building such as certain windows, doors and insulation and for 100% of the cost of a qualifying residential energy property, including certain heating and air conditioning systems and water heaters.

There is also a 26% credit, available for 2021 and 2022, to install certain energy efficient household equipment, including solar water heaters or solar power systems, small wind equipment, etc. This credit is expected to drop to 22% in 2023 and will expire thereafter.

The federal government also offers tax incentives to encourage the purchase of electric vehicles, but some of those reductions have already expired, according to manufacturers. For example, there is a rechargeable electric credit worth up to $ 7,500 for personal and business vehicles, but it has been phased out for Tesla and General Motors cars, Wolters Kluwer said.

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