How proposed IRA legislation could affect your clients

Ed Slott Welcome back. Congress is at it again, I gave you part one, those mega IRA of provisions, but there’s three more provisions Congress is targeting. And remember, these are only proposals, but your clients are interested. They’re asking questions. So you have to be able to address them.

Now, these provisions affect lots more people than the other provisions. I talked about the 10 and $20 million IRAs. Number one or number three of our list of five, if you caught the first part, is an all out ban on after tax what we call backdoor Roth conversion to end mega backdoor Roth conversion from company plans, where some people can put this year up to fifty eight thousand in these accounts and convert them essentially tax free. That would be an all out ban beginning next year, beginning next year, regardless of income. Congress doesn’t like these things, so I would say for your clients, if they can do the back doors now, it’s now or never in 21. If this becomes law, then they have this other provision on pretax Roth conversions.

Remember, the first part was the after tax that banned pretax regular Roth conversions will also be banned if income exceeds 400000 single, four hundred and fifty thousand join. But in 10 years, this provision is not effective till after 2031. Why? Well, Congress says they don’t like high earners making these Roth conversions, but they do like that their money. They do like the conversion revenue it brings in, and it fits their 10 year budget cycle. I might tell you to have these clients start a plan now, even though it doesn’t apply for 10 years, a startup plan now to do a maybe annual smaller conversions over time to bring that IRA balance down and the Roth IRA balance up.

And then the last provision involves accredited investors. These are certain people with a certain level of income, net worth and education have access to private, maybe unregistered securities. Congress does it want those types of assets in IRAs. And this is pretty serious. If you have them in there, they have to come out or be resold in the IRA, but they give you a two years to do it. But if it doesn’t come out, it disqualifies the IRA. That’s pretty serious. It means everything will be taxable.

Personally, I don’t like to opine on these things because their proposals and nobody knows which way it’s going, but I think this proposal will not make it to the final bill too much opposition against it. So this is the end, the part two. You have the five provisions.

When you look at them together, talk to your clients about each one of these. They are interested because they’re asking about it. That’s the basic framework. But for more details where you can fill in and get more information, go to my article on investment news that has lots more information on exactly these provisions that you can share with your clients.