Thursday, January 13, 2022
Albert Feuer (Law Offices of Albert Feuer), Is This the Time to Harmonize the Required Minimum Distribution Rules?, SSRN (2021):
In September, the House of Representatives Ways and Means Committee released proposals requiring many employers without retirement plans to establish and automatically enroll employees in IRAs with the default contributions going to Roth IRAs or in simple 401(k) plans. The proposals would also require a person whose employee benefit plans, Roth IRAs, and traditional IRAs have an aggregate balance in excess of $10 million to withdraw at least 50% of the excess balance. Broadening those proposals to require Roth IRAs to comply with the same required minimum distribution (RMD) rules that now govern employee benefit plans and traditional IRAs, would better implement the common-sense policy of using tax incentives to encourage adequate retirement savings by focusing on retirement savings.
Roth IRAs are subject to the same RMD rules, as traditional IRAs and tax-advantaged pension and profit-sharing plans, including their Roth designated accounts, after the death of the IRA participant and the participant’s spouse. They should also be subject to the same RMD rules during the life of the IRA participant and the IRA participant’s spouse, if any.
Subjecting Roth IRA participants to the excess benefit distribution and to the RMD rules would better limit retirement tax incentives to retirement savings. Those with Mega-IRAs, such as Mr. Thiel’s multi-billion Roth IRA, could continue to receive tax incentives for reasonable-sized retirement accounts, but the tax incentives on any excess balances would be dramatically reduced. Similarly, participants with Roth or IRA accounts of any size would be required to withdraw significant funds during the expected life of the participant and the participant’s spouse, if any. Such harmonization would permit Congress to make more funds available to encourage adequate retirement savings, such as providing larger savings credits to low-income tax payers who make contributions to tax-favored retirement plans than the Ways and Means proposal offers.