Tax Proposal
I’ve come across a few articles that not only mention that Roth conversions on after-tax dollars won’t be allowed, but that voluntary after-tax contributions will no longer be allowed either. In my reading of the proposal, this doesn’t look to be the case, but wanted to confirm that was your understanding as well.
For example, Deloitte mentions it here on page 26:
“The legislation also would prohibit all employee after-tax contributions in qualified plans…”
https://dhub.blob.core.windows.net/dhub/Newsletters/Tax/2021/TNV/210917_1.pdf
Permalink Submitted by Alan - IRA critic on Thu, 2021-10-14 21:04
I am not seeing any restriction to actually making the after tax contributions, therefore these summaries are probably incorrect, and various firms are copying from each other. But I see a different problem in the wording of Sec 138311 creating a different consequence. Since a portion of rollover to Roth would be non taxable, the proposed provisions appear to make the entire rollover ineligible as a “qualified rollover contribution” including the pre tax portion of the after tax sub account. Sec 138311 copied below:
SEC. 138311. TAX TREATMENT OF ROLLOVERS TO ROTH IRAS AND ACCOUNTS.
(a) Rollovers and Conversions Limited to Taxable Amounts.–
(1) Roth iras.–
(A) In general.–Paragraph (1) of section 408A(e)
is amended by adding at the end the following new
sentence: “A qualified rollover contribution shall not
include any rollover contribution from any eligible
retirement plan described in subparagraph (B) (other
than from a designated Roth account (within the meaning
of section 402A)) if any portion of the distribution
from which such contribution is made would (without
regard to such contribution) be treated as not
includible in gross income.”
(B) Conversions.–Subparagraph (C) of section
408A(d)(3) is amended by adding at the end the
following new sentence: “This subparagraph shall not
apply if any portion of the plan being converted would
be treated as not includible in gross income if
distributed at the time of the conversion.”
(2) Designated roth accounts.–Section 402A(c)(4)(B) is
amended by inserting “, determined after the application of
the last sentence of paragraph (1) thereof” after “section
408A(e)”.
(3) Effective date.–The amendments made by this subsection
shall apply to distributions, transfers, and contributions made
after December 31, 2021.
Permalink Submitted by [email protected] on Thu, 2021-10-21 16:02
Wow. The language does seem to imply that, although I can’t imagine that was their intent.