An embryonic proposal to raise revenue by expanding eligibility for the Roth individual retirement account program could hurt annuity sellers.

Some in Congress appear to be looking into the possibility of adding the proposal to the tax-cut reconciliation bill, in an effort to reduce tax revenue losses enough to protect the bill from running into trouble in the Senate.

No one knows whether the proposal will ever become an official part of the reconciliation bill or how it actually would affect annuity sales if enacted.

Right now, talk about the potential effect of Roth IRA expansion on annuity sales is “pure speculation,” according to officials at the American Council of Life Insurers, Washington.

But Tim VandenBerg of Washington Analysis, Washington, a securities firm that serves institutional investors, says Congress may start a gradual expansion of the Roth IRA program to offset the price of other legislative initiatives.

Negotiations between the House and Senate to reconcile the tax bills were close to completion before the Easter recess, which ends Apr. 24 . The current legislative strategy is to split the bill into two separate pieces. One bill, which would enjoy important protections from challenges in the reconciliation process. This privileged bill would include the provisions expanding eligibility to contribute to Roth IRAs.

Annuity experts say the proposed Roth IRA eligibility expansion could shift some of the cash that has been flowing into deferred annuities and annuity-based 401(k) plans into mutual funds and brokerage accounts.

When high-income individuals contribute to annuities, they get no immediate tax breaks, and withdrawals are taxed at the regular income rate.

Individuals get no tax credits or tax deductions when they make Roth IRA contributions, but they do not have to pay taxes on withdrawals made after age 59.5 or on other withdrawals that qualify for special tax treatment.

Current federal law prevents single taxpayers with annual incomes over $110,000 and married filers with annual incomes over $160,000 from contributing to Roth IRAs.

If the government increased Roth IRA income eligibility limits, it would give up future revenue from taxation of annuity withdrawals in exchange for an immediate increase in taxes paid by high-income individuals who invest in Roth IRAs rather than annuities, experts say.

The government also could increase the income eligibility limits for individuals who want to convert traditional IRAs into Roth IRAs. Those individuals would pay taxes on the assets converted at the time of the conversion in exchange for the right to make qualified withdrawals free of income taxes.

Michael Kerley, a senior vice president at the National Association of Insurance and Financial Advisers, Falls Church, Va., says he does not want to speculate about what Congress will do about Roth IRAs.

But Kerley says he has heard talk about the possibility of Congress letting high-income taxpayers convert traditional IRAs into Roth IRAs.

“The conversion would take place under favorable terms, but not favorable enough terms [for taxpayers] to avoid all the taxes they would pay under current law, Kerley says.

The “one-time only IRA conversion offer” might raise enough revenue to make up for other tax cuts that would be included in the tax-cut reconciliation bill.

“While the IRA provision would raise revenue in the first few years, it would be a long-term revenue loser to a significant degree, and therefore will make our long-term deficit picture worse — unless Congress takes steps to avoid that outcome,” Kerley says.

“A back-of-the-envelope calculation suggests that any expansion of [Roth IRA] eligibility would be designed to increase contributions to Roth IRAs by a total of roughly $80 billion dollars in 2011 and 2012,” VandenBerg writes.

The increase in contributions would yield about $28 billion in tax revenue, about the amount reconciliation bill negotiators need to protect the reconciliation bill from budget points of order in the Senate, VandenBerg writes.

But a spokesman for Nationwide Financial Services Inc., Columbus, Ohio, predicts the impact of the Roth IRA changes would be minimal.

“The proposal on the table would allow those with traditional IRAs to convert them to Roth IRAs, in which the assets are taxable,” notes the spokesman, Jeff Whetze. “The bill would only allow conversions during a narrow window of time and does not include provisions to expand eligibility in Roth IRAs. Therefore, we don’t foresee an impact on annuities.”