Wipfli logo
Insights - Articles, Blogs and on-demand webcasts

Articles & E-Books


House Ways & Means Committee tax proposals’ impact on retirement plan rules

Sep 27, 2021

On September 13, the House Ways & Means Committee released its first draft of the proposed tax changes to be incorporated into the Build Back Better Act budget reconciliation bill to fund Biden’s $3.5 trillion spending priorities.  

While the draft — referred to as “Subtitle I – Responsibly Funding Our Priorities” — provides some insight on where negotiations currently stand, this is only the first step in creating the final legislation that will eventually be voted upon by Congress and sent to Biden for signature. Given the current political environment, the final tax law changes will likely look very different than this draft.

The following is a summary of key provisions impacting retirement plans:

Contributions to IRAs

  • Prohibit contributions to a Roth or traditional IRA for a tax year if the combined value of the taxpayer’s applicable retirement accounts exceeds $10 million as of the end of the prior year
  • Applicable retirement accounts include tax-qualified defined contribution plans, as well as traditional and Roth IRAs
  • Applicable to taxpayers with taxable income over $450,000 married filing jointly (MFJ) and $400,000 for married filing single (MFS) and single

Minimum required distributions

  • Require applicable taxpayers of any age to take a minimum required distribution in the current tax year equal to 50% of the aggregate vested balances in applicable retirement accounts (as defined above) in excess of $10 million as of the end of the prior tax year
  • In addition, if the taxpayer’s aggregate vested balances exceed $20 million, that excess would first be required to be distributed from Roth IRAs and Roth designated accounts in defined contribution plans up to the lesser of 1) the aggregate plan balances in excess of $20 million or 2) the aggregate balances in Roth IRAs and Roth designated accounts in defined contribution plans (and then the 50% distribution required above would apply)
  • Applicable to taxpayers with income over $450,000 MFJ and $400,000 for MFS and single

Roth conversions

A commonly used “back door” Roth conversion strategy allows taxpayers who exceed existing Roth income limits to make nondeductible contributions to a traditional IRA or a Roth 401(k) plan and shortly thereafter convert that contribution into a Roth IRA

  • Effective for tax years beginning after December 31, 2021, this provision would prohibit all employee after-tax contributions to tax-qualified retirement plans and prohibit after-tax IRA contributions from being converted to Roth IRAs, regardless of taxpayer income level
  • Effective for tax years beginning after December 31, 2021, this provision would prohibit Roth conversions, from both traditional IRAs and 401(k) plans, for taxpayers with taxable income over $450,000 MFJ and $400,000 for MFS and single

Prohibited transaction rules

The proposals would further limit the investments that IRAs can hold. As a result, businesses that turn to IRAs as a source of capital funding for their projects will find that strategy significantly limited. IRAs currently holding these newly disallowed investments would have a two year transition period to remove them from their accounts.

  • Current prohibited transaction rules provide that an IRA owner cannot invest their IRA assets in a corporation, partnership, trust or estate in which they have a 50% or greater interest.
  • This provision would adjust the 50% threshold to 10% for investments that are not tradable on an established securities market, regardless of whether the IRA owner has a direct or indirect interest
  • The provision would also prevent investing in an entity in which the IRA owner is an officer
  • The rule would modify the rule to be an IRA requirement, rather than a prohibited transaction rule — meaning noncompliance would have significantly more adverse implications
  • Another provision would prevent IRAs from investing in unregistered securities that are offered only to accredited investors.

What’s next?

These proposals are broad-ranging, and many taxpayers would likely be negatively impacted by at least several of the provisions. Unless noted, the changes would be effective for tax years beginning after December 31, 2021, allowing taxpayers minimal time to implement planning opportunities to minimize their impact.

Wipfli will continue to monitor progress with respect to the Build Back Better Act and issue guidance as further details are provided on provisions that could impact businesses and their owners. But don’t wait until these proposals have become law to start thinking about how they will impact you, your business, and your future deals. If you have questions or would like additional information, please contact us.

Sign up to receive additional tax-related information in your inbox, or continue reading on:


Crystal Christenson, CPA, MST
View Profile