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September 24, 2021
Are you aware that Congress wants to trim your freedom inside your SDIRA?
While our newscasts and newsfeeds are filled with congresspeople issuing soundbites with the U.S. Capitol in the background, the majority of the work is done far from the bright lights of newscasters. Such work is currently going on as staffers are spending long hours drafting the basis for the largest spending bill in US history. The House Committee on Ways and Means recently issued draft provisions primarily concerned with ways to raise revenue (taxes and fees) to pay for all the additional planned spending. While the proposed legislation will cause significant changes to tax rates, it also creates significant constriction of the rules applying to IRAs.
What does this mean for you?
Should these provisions make their way into law, and let’s hope they don’t, here are the changes that may affect you as a holder of a self-directed IRA.
Since 1975, the year IRAs were created, there was never a limit to how large the account could grow. Yes, there were contribution limits, but should your investments rise precipitously, they still could be housed in any type of IRA. This bill would limit contributions to accounts with values over $10M, and those account holders would also face a minimum distribution of 50% of their balance over $10M, and for those accounts over $20M, an even faster distribution must take place.
Roth Conversions have been very popular with our clients who would rather trade paying taxes on their IRA balances today for the benefit of not paying taxes in the future following distributions. Back in 2010, Congress lifted the earning limits, allowing everyone to Convert pre-tax funds to post-tax funds. Now the earning limits return with single taxpayers with taxable income over $400,000, married filing jointly over $450,000, and heads of household over $425,000 all banned from Converting to a Roth IRA. This provision comes with a proposed date of December 31, 2031.
There is a provision that also affects qualified plan participants, which include 401(k), 403(b), 457, and Thrift Savings Plans. After December 31, 2021, you will no longer be able to convert your contributions to a Roth, nor even make future post-tax contributions. This would likely also affect NuView QRP (solo 401(k) plans.
Many self-directed IRA holders invest in private companies. In this draft plan, an IRA investor can no longer invest in an entity whereby the investment represents more than 10% of the value of the company. Furthermore, you are not allowed to invest at all in an entity where you are an officer. This will likely affect all the holders of “Checkbook-Control” IRAs, which are 100% owned by the IRA. This plan provides for a two-year period to divest from those investments.
Many investment offerings require an individual to be an “accredited investor”, having obtained a certain income or educational level. These investments are often funded through a self-directed IRA. Under this legislation, any investments that have unique investor requirements are to be banned after December 31, 2021, with a two-year period to get those investments out of your IRA.
The IRS will also double its statute of limitations for reviewing accounts for valuation and prohibited transactions from three to six years.
Regardless of whether these proposed changes may affect you, we should all be concerned about the desire of Congress to reduce the freedom of choice for individuals planning for their retirement as a way to pay for other government programs.
What can you do to help?
We encourage you to reach out to your local representatives and congressional leaders as quickly as possible. Your voice and opinion are valued and need to be heard. Together, we may be able to change the outcome of the final bill’s subject matter (Sections 138312 and 138314 of the House reconciliation bill).
To contact your U.S. Representatives, click here.
To contact your U.S. Senators, click here.
From everyone at NuView Trust, we appreciate you taking action and helping your fellow investors to protect the integrity of self-directed retirement accounts. We will continue to be a proponent on your behalf, and promise to update you along the way.