President Biden released his 2024 fiscal year budget request today which includes a proposed ban on high-balance “Mega” Roth IRA and 401k accounts for high-income taxpayers.
Per a fact sheet published today, the proposal aims to end “tax loopholes” including limiting “the amount taxpayers with incomes over $400,000 can hold in tax-favored retirement accounts.”
Recall that a similar proposal was part of the Build Back Better Plan that passed the House in 2021 but never passed out of the Senate (see Yes! Mega Backdoor Roth Solo 401k and Roth IRA 2021/2022 Lives!).
The Republicans have panned the request as “dead on arrival” with “no chance” of passing the Republican-controlled House.
The proposal includes the following elements applicable to Roth accounts:
Ban Large Retirement Accounts for High-Income Taxpayers
- High-Income Taxpayers with large retirement account balances must take a required minimum distribution:
- High-Income Taxpayers: (i) over $450k if Married Filing Jointly, (ii) Over $425,00 if the taxpayer is a head-of-household, and (iii) Over $400k in other cases
- Required Minimum Distributions equal to 50% of the excess over $10 million
- Note: If value exceeds $20 MM, the RMD is the lesser of (a) that excess and (b) the portion of the taxpayer’s aggregate vested account balance that is held in a Roth IRA or designated Roth account.
- Effective for tax years beginning after 12/31/2023.
Ban Roth Conversions for High-Income Taxpayers
- Applicable to High-Income Taxpayers
- Prohibits Pre-tax to Roth Conversions
- Applies to both IRAs and 401k plans
- Effective for tax years beginning after 12/31/2023
Ban Backdoor Roth IRA & Mega Backdoor Roth Solo 401k
- While not proposing to ban employee voluntary after-tax 401k contributions, the proposal would ban the Roth conversion of those amounts (Mega Backdoor Roth Solo 401k)
- Therefore, one could still make voluntary after-tax contributions to a 401k with the gains growing tax-deferred.
- Ban all after-tax (non-deductible) IRA contributions from being converted to Roth (Backdoor Roth IRA)
- Language of the proposal is not limited to high-income taxpayers
- Effective 1/1/2024
Please join YouTube Live Webinar Friday 3/10/2023 @ 1:00 pm Pacific/4:00 pm Eastern as Harvard Law Attorney George Blower reviews the proposed ban on high-balance “Mega” Roth IRA and 401k accounts for high-income taxpayers in the recent Biden Budget proposal for 2024 fiscal year. Note: You can click the same link to watch the recording if you can’t make the live session.
