To amend the Internal Revenue Code of 1986 to impose limitations on high-income taxpayers with large retirement account balances.
- Sponsor
- Rep. Neal, Richard E. [D-MA-1]
- Committees
- Ways and Means Committee (primary)
- Last action
- Jul 21, 2026
Bottom line
The bill aims to limit tax-advantaged retirement savings and accelerate tax collection from high-income individuals with substantial retirement account balances.
What it actually does
This bill amends the Internal Revenue Code to impose new restrictions on high-income taxpayers who have accumulated large balances in their retirement accounts. Specifically, it introduces a contribution limit for individual retirement plans (IRAs) for those with modified adjusted gross income above certain thresholds and aggregate retirement balances exceeding $10 million. It also mandates increased minimum required distributions (RMDs) for these same high-income taxpayers once their aggregate retirement balances surpass the $10 million threshold, including special rules for Roth accounts and employee stock ownership plans.
Proponents argue
Proponents argue that the current tax code allows ultra-wealthy individuals to accumulate vast sums in tax-advantaged retirement accounts, effectively deferring taxes indefinitely and using these vehicles for wealth accumulation rather than solely for retirement security. This bill, they contend, promotes tax fairness, ensures that tax benefits for retirement savings are primarily directed towards middle- and upper-middle-class savers, and generates much-needed federal revenue by closing perceived loopholes.
Opponents contend
Opponents contend that this bill punishes successful savers and discourages long-term financial planning. They argue that it adds significant complexity to the tax code and imposes burdensome administrative requirements on both taxpayers and retirement plan administrators. Critics also suggest that it could lead to unintended consequences, such as driving investment away from productive assets or disproportionately affecting small business owners who rely on SEP or SIMPLE IRAs.
The bill is moderately complex due to its technical tax code amendments and new definitions, requiring careful reading to understand its full implications.
Section 1(a), new IRC Section 409B
Contribution Limit for High-Income Taxpayers with Large Account Balances
This provision establishes a new annual contribution limit for individual retirement plans (IRAs) for taxpayers meeting specific income and asset thresholds. If a taxpayer's modified adjusted gross income (MAGI) from the prior year exceeds certain amounts (e.g., $450,000 for joint filers) and their aggregate retirement account balances exceed $10 million, their annual IRA contributions are limited to the amount by which their total balance is below $10 million. Contributions to SEP and SIMPLE plans are not directly limited but reduce the available IRA contribution room.
Supporters argue
Supporters argue this limit prevents the wealthiest individuals from using IRAs as perpetual tax shelters, ensuring these accounts serve their intended purpose of retirement savings for a broader population. It targets those who have already accumulated substantial tax-advantaged wealth.
Critics contend
Critics contend this provision penalizes successful long-term savers and adds unnecessary complexity to retirement planning. They argue it could discourage individuals from maximizing their retirement savings, potentially leading to less capital formation.
Tradeoffs
The provision balances the goal of limiting tax deferral for the ultra-wealthy against concerns about discouraging retirement savings and increasing administrative complexity for both taxpayers and financial institutions.
Section 1(b), new IRC Section 4973(i)
Excise Tax on Excess Applicable Annual Contributions
This section imposes a 6% excise tax on excess contributions to individual retirement plans that violate the new Section 409B limits. The excise tax applies to the amount by which applicable annual contributions exceed the new limit, and also carries forward any uncorrected excess contributions from prior years, reduced by distributions. This is a standard enforcement mechanism for excess contributions in retirement plans.
Section 2(a), new IRC Section 4974(f)
Increased Minimum Required Distributions for High-Income Taxpayers with Large Retirement Balances
This provision mandates increased minimum required distributions (RMDs) for high-income taxpayers whose aggregate retirement account balances exceed $10 million. If the total balance is over $10 million, the RMD is increased by 50% of the amount exceeding $10 million. If the balance exceeds $20 million (200% of the applicable dollar amount), Roth accounts are specifically targeted first for distributions up to the Roth portion of the excess. These increased RMDs apply regardless of the taxpayer's age, effectively accelerating tax collection on these large balances.
Section 2(b)(1), amendments to IRC Sections 401(a), 403(b), 457(d)
Immediate Distribution Right for Affected Taxpayers
To facilitate compliance with the new increased RMDs, the bill requires defined contribution plans, 403(b) annuity contracts, and governmental 457(b) plans to allow employees subject to the new RMD rules to elect to receive distributions from their accounts. This ensures that individuals can access funds to meet their increased RMD obligations, even if they are not otherwise eligible for distributions under existing plan rules. An exception exists for ESOPs with non-readily tradable employer securities.
Section 2(b)(2), amendment to IRC Section 72(t)(2)
Exception from 10% Additional Tax on Early Distributions
The bill amends the Internal Revenue Code to exempt distributions made to satisfy the new increased RMD requirements under Section 4974(f) from the 10% additional tax on early distributions (typically applied before age 59 1/2). This ensures that taxpayers are not penalized twice – once by the forced distribution and again by an early withdrawal penalty.
Section 2(b)(3), amendment to IRC Section 3405(b)
Additional Withholding for Required Distributions from High Balance Accounts
This provision mandates a 37% withholding rate for distributions made under the new immediate distribution rights (from qualified trusts, 403(b)s, and 457(b) plans) to satisfy the increased RMDs. Taxpayers cannot elect out of this withholding. However, qualified distributions from Roth IRAs or designated Roth accounts are exempt from this withholding, as they are generally tax-free.
Contributions to SEP and SIMPLE plans are not directly subject to the new IRA contribution limit but reduce the available contribution room for other IRAs.
Section 1(a), new IRC Section 409B(b)(1)(B)
Why it matters:This is standard legislative practice to define how different types of retirement plans interact with new limits, but it could be missed by a casual reader focusing only on direct IRA contributions.
Case for: Supporters would argue this ensures a comprehensive approach to limiting tax-advantaged savings for high-income individuals, preventing them from simply shifting contributions to other IRA-like vehicles to circumvent the new rules.
Case against: Critics might argue this adds another layer of complexity for small business owners who use SEP or SIMPLE plans, making compliance more difficult and potentially discouraging these plans.
Estimated impact: This provision ensures that the new contribution limits are not easily circumvented by using other types of individual retirement plans, broadening the impact on affected high-income taxpayers.
The dollar amounts for the $10 million aggregate balance limit and the MAGI thresholds are indexed for inflation starting in 2027, with specific rounding rules (e.g., $250,000 for the balance limit, $1,000 for MAGI thresholds).
Section 1(a), new IRC Section 409B(b)(5)
Why it matters:Inflation adjustments are common in tax legislation, but the specific rounding rules can be important for precise application and are often found in technical sections.
Case for: Proponents would argue that inflation indexing is essential to ensure the limits remain relevant over time and do not inadvertently capture a broader segment of the population due to inflation.
Case against: No specific opposition is typically raised against inflation indexing itself, though opponents of the underlying limits might argue that the initial thresholds are already too low.
Estimated impact: Ensures the real value of the thresholds is maintained over time, preventing 'bracket creep' for the limits.
Special rules for Employee Stock Ownership Plans (ESOPs): The increased RMDs cannot be allocated to portions of ESOP account balances invested in employer securities that are not readily tradable on an established securities market. This exception does not apply to amounts attributable to rollovers into the ESOP after the bill's enactment date.
Section 2(a), new IRC Section 4974(f)(4)(B)(iii)
Why it matters:This is a highly specific carve-out for a particular type of retirement plan and asset, often found in technical details rather than headline provisions.
Case for: Supporters of ESOPs would argue this protects employee-owners from being forced to sell illiquid employer stock, which could undermine the purpose of ESOPs and potentially harm the underlying companies.
Case against: Critics might argue this creates a loophole for certain wealthy individuals to avoid the accelerated RMDs if a significant portion of their wealth is tied up in illiquid ESOP shares, potentially undermining the bill's intent.
Estimated impact: Provides a significant exemption for a specific class of assets, potentially reducing the impact of the RMD rules for some individuals with large ESOP holdings.
Distributions made to satisfy the increased RMDs under this new subsection are explicitly treated as distributions required under existing RMD rules, meaning they are NOT eligible for rollover into another retirement plan.
Section 2(a), new IRC Section 4974(f)(5)
Why it matters:This is a critical detail that clarifies the tax treatment and future planning implications of these mandated distributions, which a casual reader might assume could be rolled over.
Case for: Proponents would argue this is essential to the bill's purpose of accelerating tax collection. Allowing rollovers would defeat the intent of forcing distributions and taxing the accumulated wealth.
Case against: Opponents might argue this further restricts financial flexibility for affected taxpayers, preventing them from managing their wealth effectively after being forced to take distributions.
Estimated impact: Significantly limits the ability of affected taxpayers to re-shelter the distributed funds in other tax-advantaged accounts, ensuring the distributions result in immediate taxation.