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Biden Plan Drops Retirement Changes, Leaves Backdoor Roths Intact

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What You Need to Know

  • Backdoor Roth IRA strategies are left intact in Biden's framework.
  • All the other retirement planning provisions approved by House Ways and Means have also been cut.
  • Retirement trade group IRI says it will push for Secure Act 2.0, which raises the RMD age and expands auto-enrollment.

While President Joe Biden’s Build Back Better framework, released Wednesday, excluded the retirement planning provisions that were approved in the House Ways and Means Committee’s Build Back Better bill, retirement industry advocates plan to prod lawmakers to pass Secure Act 2.0.

On May 5, the House Ways and Means Committee passed the Secure Act 2.0, known officially as the Securing a Strong Retirement Act of 2021. The bill raises the required minimum distribution age from 72 to 75, expands automatic enrollment in retirement plans and enhances 403(b) plans, among other provisions.

Paul Richman, chief government and political affairs officer at the Insured Retirement Institute, told ThinkAdvisor Friday in an email that IRI is “disappointed to learn that the Build Back Better framework had dropped the automatic contribution plans and arrangements provision.”

IRI believes “that it was good public policy that held the promise of addressing the insecurity and anxiety millions of America’s workers, retirees, and their families feel about retirement,” Richman said. “It would have created millions of new retirement savers and trillions of dollars in new retirement savings, especially for lower- and middle-income workers and fit well with the goals and objectives of the overall Build Back Better agenda.”

That said, IRI is “hopeful and optimistic that Congress will continue to seek ways to address our nation’s retirement insecurity, build economic equity, strengthen financial security, and provide the means for workers to create sustainable lifetime income to last throughout their retirement years by now turning its attention to the package of retirement savings bills, known as the Secure 2.0. We’re going to be focusing our attention now on Secure 2.0 and trying to move that forward.”

Proposals in the House Ways and Means Committee’s Build Back Better bill that were dropped from Biden’s new framework include:

More on this topic

1. Prohibiting further contributions to a Roth or traditional IRA for a taxable year if the total value of an individual’s IRA and defined contribution retirement accounts generally exceed $10 million as of the end of the prior taxable year. The limit on contributions would only apply to single taxpayers (or taxpayers married filing separately) with taxable income over $400,000, married taxpayers filing jointly with taxable income over $450,000, and heads of households with taxable income over $425,000 (all indexed for inflation).

2. Increasing required minimum distributions for high-income taxpayers with combined retirement account balances over $10 million.

3. Ending so-called “backdoor” Roth IRA strategies by eliminating Roth conversions for both IRAs and employer-sponsored plans for single taxpayers (or taxpayers married filing separately) with taxable income over $400,000, married taxpayers filing jointly with taxable income over $450,000, and heads of households with taxable income over $425,000 (all indexed for inflation). The bill also prohibited all employee after-tax contributions in qualified plans and prohibits after-tax IRA contributions from being converted to Roth regardless of income level, effective for distributions, transfers and contributions made after Dec. 31, 2021.

4. Requiring employers that have been in existence for at least two years, do not sponsor a retirement plan, and employ five or more people to automatically enroll those employees in IRAs or 401(k)-type plans.

5. Modifying the Saver’s Credit by turning it into a government-based matching contribution and making it refundable.

Pictured: President Joe Biden. (Photo: Bloomberg)