In this Q&A with IRA Financial President, Adam Bergman, Esq., Adam will answer all your questions about the latest tax legislation that was introduced last week by the Ways and Means Committee. Specifically, he will answer questions regarding Self-Directed IRA investors and how this proposed legislation could affect you!

Some bullet points included in this legislation:

Tax Related

*The top Individual tax rate would increase from 37% to 39.6%.
*There would be an additional 3% “surcharge tax” for those earning more than $5 million.
*Increase the top capital gains rate from 20% to 25%. Note: this could be effective for all sales after September 13, 2021, unless there’s a written binding contract.
*Expand the “Net Investment Income” tax.
*Increases the holding period for carried interest from three years to five years to receive long-term capital gains treatment. Note: If you have less than $400,000 in income, the three year period is retained.
*The exclusion rate for qualified small business stock (QSBS) would be limited to 50% if you have more than $400,000 in income. The exclusion will remain 100% for those earning less.
*The unified tax credit for estates (which now stands at $24 million for joint filers) would be reduced to $5 million per individual. The expiration of the current exemption would expire at the end of 2021.
*Another estate planning provision is the valuation rules. There will be no discount when transferring non-business assets for “transfer tax purposes.”
*The corporate tax rate will be increased to 26.5%, which is lower than what has been mentioned in the past.
*No step-up in basis proposal. The 3% surcharge to those earning $5 million would eliminate the need for this legislation.

Retirement Related

*Limits contributions to a traditional or Roth IRA if your total retirement savings is over $10 million. This includes IRAs and defined benefit plans, such as 401(k) plans.
*The above limit would apply to those earning more than $400,000 or $450,000 for those who file jointly.
*New required distributions for IRAs: If you exceed $10 million in combined retirement savings in a given year, you must distribute at least 50% of the excess amount.
*If you exceed $20 million, you must withdraw from 401(k) plans and Roth IRAs first. These rules apply to those with $400,000 ($450,000 if married filing jointly) in annual income.
*The elimination of the Backdoor Roth IRA. If you are above the above-mentioned income limits, you can no longer convert to a Roth IRA. This would go into effect after 12/31/31.
*The elimination of the Mega Backdoor Roth strategy. No longer can you contribute after-tax funds into your workplace plan, or convert after-tax contributions to an IRA. This applies to everyone!
*You would be prohibited of holding assets that require accredited investor status with IRA funds. For example, you couldn’t use your IRA to invest in private placements.
*Extend the statute of limitations from three to six years on IRAs, giving the IRS more time to find asset valuation and prohibited transaction violations.
*Reduces the 50% threshold to 10% of controlling interest in an entity to be able to invest your IRA in that entity. If you own 10% of a business, you can no longer invest your IRA in that business.
*Provide the IRS with approximately $80 billion to help them with tax enforcement and update information technology.

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