Build Back Better – Retirement Revisions

A Roth IRA is a tax-advantaged account used to save for retirement, which allows for contributions to be made after you’ve paid income taxes on the money. In other words, the money that you save is taxed upfront enabling the largest benefit to be had; withdrawals free from federal income tax down the road, no matter how much your investments have grown.

Roth accounts were a creation of Senator William Roth who eventually had both the Roth IRA & Roth 401(k) named after him. The Roth IRA became a savings opportunity beginning in 1998 with the Taxpayer Relief Act of 1997. Roth pushed to create a tax-free stream of retirement income while not decreasing government revenue noting, “I think the American people are taxed too much. So I strongly support and have advocated for many years reducing the taxes on the working people of America.” However, these tax-advantaged accounts have benefited the ultra-wealthy, who also seem to claim the largest tax benefits from them.

The Build Back Better Act would impose a new requirement on high-income individuals and couples who own balances of $10 million on more across defined contribution retirement accounts (such as IRAs and 401(k)s) to make required withdrawals of significant amounts.  Any single filer who earns over $400,000 a year or married couples filing jointly earning over $450,000 a year would not be allowed to contribute to their funds and would also be forced to withdraw 50% of any amount over the $10 million threshold.

Another provision is even harder on Roth IRAs. This applies to the same group of filers as indicated above who ALSO have more than $20 million held in defined contribution retirement accounts and any portion of that amount in a ROTH account. The proposed legislation would retire that EITHER the entire balance of the Roth account OR an amount that would bring the combined balance of all accounts to under $20 million (whichever is less) to be withdrawn.