Congress Isn’t Finished Coming After Your Retirement Money

The Biden administration and Congress are planning major spending increases in 2021 and beyond. They are going to raise taxes to pay for some of that spending.

A lot of the revenue to pay for the new spending is likely to come from retirement plans, according to several speakers at a recent American Bar Association Section on Taxation virtual conference reported in Tax Notes Today. Speakers at the conference said that in recent years, retirement plans often have been the place elected officials and staff on Capitol Hill look when they need revenue.

Congress spent decades providing tax incentives for people to put money into retirement accounts. There now are trillions of dollars in retirement accounts, and Congress wants the money to be distributed and taxed.

In 2019, when Congress needed money to pay for the tax breaks created in the Setting Every Community Up for Retirement Enhancement (SECURE) Act, it eliminated the Stretch IRA.

The idea had been proposed for years and had bipartisan support.There are several other proposals that have been pushed the last few years by bipartisan groups. Here’s a list I developed.Required minimum distributions might be imposed on Roth IRAs.

The back-door Roth IRA might be eliminated.

The strategy of using after-tax contributions to a 401(k) plan to add up to $37,000 to a Roth IRA each year that I described in the November 2019 issue of Retirement Watch could be a target.

Congress might decide to put a limit on the amount that can be accumulated in an IRA or 401(k), stopping contributions after an individual accrues “too much” in the retirement accounts.

The maximum contributions, deductions or deferrals for IRAs and 401(k)s could be reduced so that higher-income taxpayers receive less of a benefit.

One thing we learned from the Stretch IRA experience is that these changes don’t happen overnight.

The ideas are proposed over several years in speeches, campaign platforms and draft legislation. When Congress needs to raise some tax revenue, it grabs one or more of these ideas that have been floated and puts them in the latest bill.

Each of the ideas listed above fits that pattern and so might be in an upcoming law. Make use of them while you can.

The likelihood of one or more of these ideas becoming law is more reason to consider the strategies I have presented for making an end-run around the SECURE Act. See our March and April 2020 issues for details of these strategies.