Retirement Savings and Benefits
Questions and comments about IRAs, 401k accounts, social security, and other forms of retirement savings and benefits.
Can someone please decode this?!?!
Posted by: 47Percent, November 3, 2017 05:16AM

Can someone explain the proposed changes to ROTH in simple understandable English, please?!

Horror of all horrors...

Have they completely taken away recharacterization?

Proposed Text:

Subtitle F—Simplification and Reform of Savings, Pensions, Retirement


(a) IN GENERAL.—Section 408A(d) is amended by striking paragraph (6) and by redesignating paragraph (7) as paragraph (6).

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2017.

Paragraph (6) referenced above is given as below..

(6)Taxpayer may make adjustments before due date

(A)In general
Except as provided by the Secretary, if, on or before the due date for any taxable year, a taxpayer transfers in a trustee-to-trustee transfer any contribution to an individual retirement plan made during such taxable year from such plan to any other individual retirement plan, then, for purposes of this chapter, such contribution shall be treated as having been made to the transferee plan (and not the transferor plan).

(B)Special rules

(i)Transfer of earnings
Subparagraph (A) shall not apply to the transfer of any contribution unless such transfer is accompanied by any net income allocable to such contribution.

(ii)No deduction
Subparagraph (A) shall apply to the transfer of any contribution only to the extent no deduction was allowed with respect to the contribution to the transferor plan.

Re: Can someone please decode this?!?!
Posted by: Alan S., November 3, 2017 04:52PM
That is the intent, but this is only the house bill at this point. This is what the ASPPA states:

>>>>IRA Contribution/Conversion Recharacterization Rule
Individuals are currently allowed to recharacterize either contributions or conversions to a traditional IRA into a Roth IRA and vice versa [IRC § 408A(d)(6)].  However, Section 1501 would repeal that provision in the tax code (raising $500 million in revenue over 10 years).


Effective for tax years beginning after 12/31/2017. In it's current form it would also leave the IRS with regulatory issues, since recharacterization is used to change correct excess Roth contributions (income too high) or failed conversions (such as converting RMD money). So there would have to be exceptions made.

This does not save that much tax revenue over 10 years, so it is very possible that the financial industry is behind this. They might be tired of doing all these transactions and the 1099R/5498 reporting with no offsetting fees. It would also be a boost to plan sponsors that allow IRRs, since this would eliminate one of the large drawbacks of IRRs compared with IRA conversions.

Most likely, if conversions cannot be recharacterized, taxpayers will be doing fewer and smaller conversions. So rather than raising 500 million, this may end up costing 500 million.

Re: Can someone please decode this?!?!
Posted by: 47Percent, November 3, 2017 05:59PM

I am bummed because this was possibly the one and only avenue that let you adjust/tweak your taxable income past Dec 31st.

Since most people really can't tell how much the taxable income would be till Jan 31st or so -- what with this surprise dividend distribution etc., this used to be really helpful.

This is like a cutting off the middle finger because someone thinks flipping a bird is a bad idea.

Re: Can someone please decode this?!?!
Posted by: Alan S., November 3, 2017 07:33PM
Well, after the negotiations start and the Senate passes their bill, this provision may well be gone or modified.

But if it passes - for regular contributions that are ineligible or not made to the best IRA type, the solution will be to request a return of contribution and start over with a new contribution, or more likely the taxpayer would have to wait until the following year before knowing their income and best contribution option.

While a contribution can be returned up to 10/15 of the following year, a new contribution can only be made up to 4/15. I can see a few taxpayers making two types of contributions early in the year if they are not sure and just removing the worst one with earnings some time in the following year up to 10/15 cutoff. Since the earnings would be taxable and subject to penalty, this approach will never be as effective as recharacterization.

Really no partial solutions for conversions other than to wait until December and try to figure out the optimal amount to convert.

Re: Can someone please decode this?!?!
Posted by: Sven, November 3, 2017 09:20PM
"Oh what a tangled web we weave....."

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