[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 5422 Introduced in Senate (IS)]
<DOC>
118th CONGRESS
2d Session
S. 5422
To amend the Internal Revenue Code of 1986 to provide a contribution
limit and increased minimum distributions for certain retirement plans
with large account balances.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
December 4, 2024
Mr. Merkley introduced the following bill; which was read twice and
referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide a contribution
limit and increased minimum distributions for certain retirement plans
with large account balances.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Retirement Fairness Act''.
SEC. 2. CONTRIBUTION LIMIT AND INCREASED MINIMUM DISTRIBUTIONS FOR
CERTAIN RETIREMENT PLANS WITH LARGE ACCOUNT BALANCES.
(a) Contribution Limit.--
(1) In general.--Subpart A of part I of subchapter D of
chapter 1 of the Internal Revenue Code of 1986 is amended by
adding at the end the following:
``SEC. 409B. CONTRIBUTION LIMIT ON CERTAIN RETIREMENT PLANS WITH LARGE
ACCOUNT BALANCES.
``(a) General Rule.--Notwithstanding any other provision of this
title, no applicable annual additions shall be made by, or on behalf
of, an individual for the taxable year to any applicable retirement
plan to the extent such applicable annual additions exceed the excess
(if any) of--
``(1) the applicable dollar amount for the taxable year,
over
``(2) the aggregate balances to the credit of the
individual (whether as a participant, owner, or beneficiary) in
all applicable retirement plans (determined as of the close of
the calendar year preceding the calendar year in which the
taxable year begins).
``(b) Rules Relating to Contribution Limitations.--
``(1) Plans other than certain iras.--
``(A) In general.--Except as provided in paragraph
(2), applicable annual additions in excess of the
limitation under subsection (a) shall be treated for
purposes of this title in the same manner as excess
deferrals are treated under section 402(g).
``(B) Special rule for after tax contributions.--
If, without regard to this paragraph, any portion of an
applicable annual addition to which subparagraph (A)
applies with respect to an individual is not excludable
from gross income of the individual (or no deduction is
allowable to the individual with respect to such
portion), such portion shall not be--
``(i) includible in gross income by reason
of the application of subparagraph (A), or
``(ii) taken into account in computing the
investment in the contract for purposes of
section 72.
``(2) Special rule for iras.--
``(A) In general.--In the case of an applicable
retirement plan which is an individual retirement plan
(other than a simplified employee pension under section
408(k) or a simple retirement account under section
408(p)), any applicable annual addition to such plan in
excess of the limitation under subsection (a) shall be
treated for purposes of sections 408 and 408A as a
contribution for the taxable year in excess of the
maximum amount allowable as a deduction under section
219 for the taxable year.
``(B) After tax contributions.--In the case of
applicable annual additions in excess of the limitation
under subsection (a)--
``(i) rules similar to the rules of
paragraph (1)(B) shall apply to any such
additions which are treated as designated
nondeductible contributions under section
408(o), and
``(ii) section 408A(d)(2)(C) shall apply to
any such additions which are to a Roth IRA (and
to any net income allocable to such additions).
For purposes of clause (ii), distributions from a Roth
IRA shall be treated as first made from amounts
described in clause (ii) and section 408A(d)(2)(C)
shall be applied in the same manner as if there were a
distribution of a contribution described in section
408(d)(4) (without regard to whether such distribution
is timely made).
``(3) Allocation of excess applicable annual additions.--If
the applicable dollar amount for a taxable year exceeds the
amount described in subsection (a)(2), the taxpayer may, in
such form and manner as the Secretary may prescribe, allocate
such excess to applicable annual additions to each applicable
retirement plan in such manner as the taxpayer chooses.
``(c) Definitions and Special Rules.--For purposes of this
section--
``(1) Applicable annual addition.--
``(A) In general.--The term `applicable annual
addition' means any of the following made to or on
behalf of an individual:
``(i) An annual addition (within the
meaning of section 415(c)(2)).
``(ii) Any contribution to an individual
retirement plan, including any employer or
employee contribution to a simplified employee
pension under section 408(k) or a simple
retirement account under section 408(p).
``(iii) Any deferral under an eligible
deferred compensation plan described in section
457(b) which is maintained by an eligible
employer described in section 457(e)(1)(A).
``(B) Rollover contributions disregarded.--A
rollover contribution under section 402(c), 403(b)(8),
408(d)(3)(A)(ii), or 457(e)(16) shall not be treated as
an annual addition.
``(2) Applicable dollar amount.--
``(A) In general.--The term `applicable dollar
amount' means $4,000,000.
``(B) Adjustment for inflation.--In the case of any
taxable year beginning after 2025, the $4,000,000
amount under subparagraph (A) shall be increased by an
amount equal to the product of--
``(i) such amount, and
``(ii) the cost-of-living adjustment under
section 1(f)(3) for the calendar year in which
such taxable year begins, determined by
substituting `calendar year 2024' for `calendar
year 2016' in subparagraph (A)(ii) thereof.
``(C) Rounding.--If any amount as adjusted under
subparagraph (B) is not a multiple of $1,000, such
amount shall be rounded to the next lowest multiple of
$1,000.
``(3) Applicable retirement plan.--The term `applicable
retirement plan' means--
``(A) a defined contribution plan to which section
401(a) or 403(a) applies,
``(B) an annuity contract under section 403(b),
``(C) an eligible deferred compensation plan
described in section 457(b) which is maintained by an
eligible employer described in section 457(e)(1)(A), or
``(D) an individual retirement plan.
``(d) Regulations.--The Secretary shall prescribe such regulations
and guidance as are necessary or appropriate to carry out the purposes
of this section, including regulations or guidance that provide for the
application of this section and section 4974(e) in the case of plans
with a valuation date other than the last day of a calendar year.''.
(2) Conforming amendments.--
(A) The table of contents for subpart A of part I
of subchapter D of chapter 1 of such Code is amended by
adding after the item relating to section 409A the
following new item:
``Sec. 409B. Contribution limit on certain retirement plans with large
account balances.''.
(B) Section 402(g) of such Code is amended by
adding at the end the following new paragraph:
``(9) Aggregate limitation.--For additional limitation on
contributions to certain plans with large account balances, see
section 409B.''.
(C) Section 403(b)(1) of such Code is amended by
adding at the end the following new sentence: ``For
additional limitation on contributions to certain plans
with large account balances, see section 409B.''
(D) Section 408(r) of such Code is amended by
adding at the end the following new paragraph:
``(3) For additional limitation on contributions to certain
plans with large account balances, see section 409B.''.
(E) Section 457(c) of such Code is amended by
adding at the end the following new sentence: ``For
additional limitation on contributions to certain plans
with large account balances, see section 409B.''.
(b) Excise Tax on Excess Annual Additions.--
(1) In general.--Subsection (a) of section 4973 of the
Internal Revenue Code of 1986 is amended--
(A) by striking ``or'' at the end of paragraph (5),
(B) by inserting ``or'' after the comma at the end
of paragraph (6), and
(C) by inserting after paragraph (6) the following
new paragraph:
``(7) an applicable retirement plan (within the meaning of
section 409B(c)(3)),''.
(2) Excess contributions to applicable retirement plans.--
Section 4973 of such Code is amended by adding at the end the
following new subsection:
``(i) Excess Contributions to Applicable Retirement Plans.--For
purposes of this section, in the case of applicable retirement plans
(within the meaning of section 409B(c)(3)), the term `excess
contributions' means, with respect to any taxable year, the sum of--
``(1) the excess of the applicable annual additions (within
the meaning of section 409B(c)(1)) to such plans over the
limitation under section 409B(a) for such taxable year, and
``(2) the lesser of--
``(A) the amount determined under this subsection
for the preceding taxable year, reduced by the
aggregate distributions from such plans for the taxable
year (including distributions required under section
4974(e)) to the extent not contributed in a rollover
contribution to another eligible retirement plan in
accordance with section 402(c), 403(b)(8), 457(e)(16),
408(d)(3), or 408A(d)(3), or
``(B) the amount (if any) by which the amount
determined under section 409B(a)(2) for the taxable
year exceeds the applicable dollar amount under section
409B(c)(2) for the taxable year.''.
(3) Conforming amendments.--Subsection (a) of section 4973
of such Code is amended--
(A) by striking ``accounts or annuities'' and
inserting ``accounts, annuities, or plans'', and
(B) by striking ``account or annuity'' and
inserting ``account, annuity, or plan''.
(c) Increase in Minimum Required Distributions.--
(1) In general.--Section 4974 of the Internal Revenue Code
of 1986 is amended by adding at the end the following new
subsection:
``(f) Increase in Minimum Required Distributions for Payees With
Large Aggregate Account Balances.--
``(1) In general.--If this subsection applies to a payee
for any taxable year--
``(A) all qualified retirement plans and eligible
deferred compensation plans of the payee which are
applicable retirement plans taken into account in
computing the excess described in paragraph (2)(A)
shall be treated as 1 plan solely for purposes of
applying this section to the increase in minimum
required distributions for the taxable year described
in subparagraph (B), and
``(B) the minimum required distributions under this
section for all plans treated as 1 plan under
subparagraph (A) with respect to such payee for the
taxable year shall be increased by the excess (if any)
of--
``(i) the excess described in paragraph
(2)(A), over
``(ii) the sum of the minimum required
distributions (determined without regard to
this subsection) for all such plans.
``(2) Application.--This subsection shall apply to a payee
for a taxable year--
``(A) if the aggregate balances to the credit of
the payee (whether as a participant, owner, or
beneficiary) in all applicable retirement plans
(determined as of the close of the calendar year
preceding the calendar year in which the taxable year
begins) exceed the applicable dollar amount for the
calendar year in which the taxable year begins, and
``(B) without regard to whether amounts with
respect to the payee are otherwise required to be
distributed under section 401(a)(9), 403(b)(10),
408(a)(6), 408(b)(3), or 457(d)(2).
``(3) Coordination and allocation.--
``(A) Minimum distribution requirements.--If this
subsection applies to a payee for any taxable year--
``(i) this section shall apply first to
minimum required distributions determined
without regard to this subsection and then to
any increase in minimum required distributions
by reason of this subsection, and
``(ii) nothing in this subsection shall be
construed to affect the amount of any minimum
required distribution determined without regard
to this subsection or the plan or plans from
which it is required to be distributed from.
``(B) Allocation of increase in minimum required
distributions.--The taxpayer may, in such form and
manner as the Secretary may prescribe, allocate any
increase in minimum required distributions by reason of
this subsection to applicable retirement plans treated
as 1 plan under subparagraph (A) in such manner as the
taxpayer chooses.
``(4) Treatment of roth iras.--
``(A) In general.--Notwithstanding section
408A(c)(5)--
``(i) the aggregate balance to the credit
of a payee of any Roth IRA shall be taken into
account for purposes of this subsection, and
``(ii) distributions from a Roth IRA may be
taken into account in determining whether the
required increase in minimum required
distributions by reason of this subsection has
been satisfied.
``(B) Inclusion in income of distributed
earnings.--If any distribution from a Roth IRA is taken
into account under subparagraph (A)(ii), then,
notwithstanding section 408A(d)(5), the portion of such
distribution which is properly allocable to net income
on contributions to the Roth IRA shall not be treated
as a qualified distribution and shall be included in
gross income of the payee.
``(5) Phase-in for taxpayers with excess balances for
taxable year beginning in 2025.--
``(A) In general.--If there is an excess described
in paragraph (2)(A) for the first taxable year of a
taxpayer beginning during 2025 (in this paragraph
referred to as the `historic excess'), then the amount
taken into account under paragraph (1)(B)(i) for such
first taxable year and each subsequent taxable year to
which this paragraph applies shall, in lieu of the
excess described in paragraph (2)(A) for each such
taxable year, be equal to--
``(i) in the case of such first taxable
year, 10 percent of the historic excess, and
``(ii) in the case of each subsequent
taxable year to which this paragraph applies,
the sum of--
``(I) 100 percent of amount (if
any) by which the excess described in
paragraph (2)(A) for such taxable year
exceeds the adjusted historic excess
for such taxable year, plus
``(II) 10 percent of the adjusted
historic excess for such taxable year
(100 percent of such adjusted historic
excess for any taxable year if it is
less than $1,000).
``(B) Adjusted historic excess.--For purposes of
this paragraph, the term `adjusted historic excess'
means, with respect to any taxable year, the lesser
of--
``(i) the excess (if any) of the--
``(I) the historic excess, over
``(II) the aggregate amount of the
historic excess taken into account
under clauses (i) and (ii)(II) of
subparagraph (A) for all preceding
taxable years, or
``(ii) the aggregate balances to the credit
of the payee (whether as a participant, owner,
or beneficiary) in all applicable retirement
plans (determined as of the close of the
calendar year preceding the calendar year in
which such taxable year begins) in excess of
$4,000,000.
``(C) Taxable years to which paragraph applies.--
This paragraph shall not apply to--
``(i) any taxable year if the aggregate
amount of the historic excess taken into
account under clauses (i) and (ii)(II) of
subparagraph (A) for all preceding taxable
years equals such historic excess, or
``(ii) the first taxable year in which the
aggregate balances to the credit of the payee
(whether as a participant, owner, or
beneficiary) in all applicable retirement plans
(determined as of the close of the calendar
year preceding the calendar year in which such
taxable year begins) are $4,000,000 or less and
any subsequent taxable year.
``(6) Definitions.--For purposes of this subsection, any
term used in this subsection which is also used in section 409B
shall have the same meaning as when such term is used in such
section.''.
(2) Exception from 10 percent additional tax on early
distributions.--Section 72(t)(2) of such Code is amended by
adding at the end the following new subparagraph:
``(O) Distributions of excess balances.--
Distributions from applicable retirement plans (within
the meaning of section 409B) to the extent such
distributions during the taxable year do not exceed the
amount (if any) by which--
``(i) the amount determined under section
409B(a)(2) for the taxable year, exceeds
``(ii) the applicable dollar amount under
section 409B(c)(2) for the preceding taxable
year.''.
(d) Reporting Requirements.--Section 6047 of the Internal Revenue
Code of 1986 is amended by redesignating subsection (h) as subsection
(i) and by inserting after subsection (g) the following:
``(h) Reporting Relating to Aggregate Contribution and Balance
Limits on Certain Retirement Plans.--The Secretary shall require the
plan administrator or trustee of an applicable retirement plan (as
defined in section 409B) to make such returns and reports to the
Secretary and participants and beneficiaries as are necessary to apply
the aggregate limits on contributions imposed by section 409B and the
increases in minimum required distributions required by section
4974(e). If the account balance of a plan as of the close of a calendar
year is not otherwise required under this title to be reported to a
participant, a beneficiary, or the Secretary, such requirements shall
include a requirement that the plan administrator or trustee shall
notify the participant, the beneficiary, or the Secretary of such
account balance at such time and in such manner as the Secretary may
prescribe.''.
(e) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2024.
(2) Plan requirements.--The amendments made by subsection
(d) shall apply to years beginning after December 31, 2024.
SEC. 3. TRANSFER OF AMOUNTS TO TRUST FUNDS.
There are hereby appropriated to each of--
(1) the Federal Old-Age and Survivors Trust Fund, and
(2) the Federal Disability Insurance Trust Fund,
established under section 201 of the Social Security Act (42 U.S.C.
401) amounts equal to 50 percent of the increase in revenues to the
Treasury by reason of the application of section 2.
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