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Retirement Planning > Saving for Retirement > IRAs

Biden's 2025 Budget Continues Fight Against Mega Roths

By Allison Bell

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President Joe Biden’s new federal budget proposal brings back the battle he started last year to keep high-income Americans from using individual retirement accounts to cut their taxes.

The proposed budget calls for the Internal Revenue Service to squeeze about $23.6 billion in extra revenue out of high-income taxpayers over the next decade by limiting their use of individual retirement accounts.

The projected 10-year savings total has increased from the 10-year savings amount Biden administration budget analysts released a year ago.

The administration has not yet given details about the kinds of IRA rule changes to be included in the final version of the new budget proposal, which would affect federal government spending in fiscal year 2025, which starts Oct. 1. But the new IRA provision appears to be similar to the IRA provision the Biden administration in its “Greenbook,” or detailed description of revenue-raising proposals, for the fiscal year 2024 budget proposal.

What it means: The Biden administration has noticed that clever use of IRAs can save high-income and wealthy people a lot of money.

The IRA gameboard: Taxpayers get tax breaks when they contribute to traditional IRAs but pay ordinary federal income taxes on the distributions.

Taxpayers put after-tax income into Roth IRAs and can pull distributions out without having to pay federal income taxes on the income.

Tax rules keep high-income taxpayers from contributing to Roth IRAs, but some have gotten around the restrictions by putting cash into traditional IRAs and then converting the traditional IRA assets into Roth through a process known as a “backdoor Roth IRA conversion.”

Budgets: A president’s budget proposal is just part of the process that the White House and Congress use to decide how much to spend on what. Few of the tax-increasing provisions included in a typical presidential budget proposal actually become law.

The 2024 Greenbook proposals: The Biden administration gives a general description of the new IRA proposals in a discussion of proposals affecting wealthy people and big corporations.

The budget proposal includes “reforming tax preferred retirement incentives to ensure that the ultrawealthy cannot use these incentives to amass tax free fortunes,” according to the summary.

Last year, the administration proposed requiring a high-income taxpayer with more than $10 million in an IRA to pull out at least 50% of excess retirement savings through a very large required minimum distribution.

The administration also proposed limiting rollovers into and conversions to Roth retirement accounts or Roth IRAs and extending the statute of limitations in the case of a substantial error involving IRA asset valuations to six years, from three years.

Credit: Adobe Stock

Allison Bell

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