Democrats put 401(k) and IRA restrictions back into Build Back Better

House Democrats proposed several rules to curb retirement accounts of the rich, part of a broad restructuring of the tax code tied to the party’s Build Back Better social and climate spending package.

Wealthy individuals with more than $10 million in retirement savings would have to draw down their accounts each year, in a new type of required minimum distribution, or RMD, according to updated legislation issued Wednesday evening by the House Budget Committee.

Lawmakers would also close “backdoor Roth” tax loopholes for the rich, and prohibit further individual retirement account contributions once those accounts exceed $10 million.

The measures are aimed at curbing the use of 401(k) plans and IRAs as tax shelters for the wealthy.

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The proposals were included in an initial House tax proposal in September. However, the White House stripped the retirement-plan rules from a $1.75 trillion framework issued Oct. 28 after lengthy negotiations with holdout members of the Democratic party, who were concerned about some tax and other elements of the package.

Some of the earlier retirement proposals didn’t re-appear in the new iteration, however.

For example, the initial legislation would have disallowed IRA investments like private equity that require owners to be so-called “accredited investors,” a status tied to wealth and other factors.

And some of the rules would kick in years later than originally proposed.

The legislative draft, which is still subject to change, aims to raise taxes on households making more than $400,000 a year and corporations in order to fund expanded access to child care, home care and health care; cut taxes for low and middle earners; and invest in measures to curb climate change.

Republicans staunchly oppose the plan. Democrats, who have razor-thin margins, can’t afford to lose a vote on the Senate and hardly any in the House for the measure to pass.

It’s unclear how will the Senate will ultimately land on the tax measures and other aspects of the broad package.

“It’s sort of like a chess game,” Robert Keebler, an accountant and estate planner based in Green Bay, Wisconsin, said. “When will the Senate make its move?”

Currently, RMDs for account owners are tied to age instead of wealth. Roth IRA owners also aren’t subject to these distributions under current law. (One exception: inherited IRAs at death.)

The House legislation would add to those rules, asking wealthy savers of all ages to withdraw a large share of aggregate retirement balances annually. They’d potentially owe income tax on the funds.

The…