Approaching Equitable Retirement Tax Incentives
49 COMP. PLAN. J. No. 10 (2021)
11 Pages Posted: 14 Oct 2021 Last revised: 21 Oct 2021
Date Written: October 12, 2021
In September, the Ways-and-Means Committee of the House approved proposals to substantially improve the equity of retirement tax incentives for American workers. The new requirement that employers automatically enroll employees in a simple defined contribution plan, and the new refundable retirement savings tax credits, both do so. One major proposal needs to be added. Roth individual retirement accounts and annuities (IRAs) must be subject to the same required minimum distribution (RMD) rules as traditional IRAs. Other Committee proposals may be improved. Simplify the new excess balance distribution rules for a taxpayer, whose aggregate IRA and defined contribution accounts exceed $10 million at the end of a tax year. Harmonize the sanctions for excess balance violations with those for RMD rule violations. Simplify the new Roth IRA conversion rules. Remove the income threshold triggers for the new limits. Increase reporting about participant and beneficiary individual accounts.
Congress is now considering how to better implement the common-sense principle that tax incentives to encourage adequate retirement savings be focused on retirement savings. By increasing transparency and the benefits directed at those with inadequate retirement saving as described herein, and reducing loopholes and undue complexity, Congress may not only increase the equity and efficacy of our huge retirement tax incentives and our tax system, but boost Americans’ confidence in their government.
Keywords: minimum required distributions, MRDs, required minimum distributions, RMDs, pension plans, defined contribution plans, 401(k) plans, retirement plans, IRAs, Roth IRA, participant, beneficiary, income tax, tax deferral, tax incentive, withdrawal, distribution, estate planning, equity, inequality
JEL Classification: I18, J26, J32, J33, K34, K39
Suggested Citation: Suggested Citation