A bill to amend the Internal Revenue Code of 1986 to impose limitations on high-income taxpayers with large retirement account balances.
- Sponsor
- Sen. Wyden, Ron [D-OR]
- Committees
- Finance Committee (primary)
- Last action
- Jul 21, 2026
Bottom line
The bill aims to curb the accumulation of extremely large, tax-advantaged retirement savings by wealthy individuals and accelerate the taxation of those assets.
What it actually does
This bill amends the Internal Revenue Code of 1986 to restrict contributions to individual retirement plans for high-income taxpayers whose aggregate retirement account balances exceed $10 million. It also mandates increased minimum distributions for these taxpayers once their balances surpass the $10 million threshold, with specific rules for Roth accounts and employee stock ownership plans, aiming to accelerate the taxation of these large, tax-advantaged assets.
Proponents argue
Proponents argue this bill addresses concerns that current tax laws allow wealthy individuals to use retirement accounts as tax shelters rather than solely as vehicles for retirement security, enabling them to accumulate vast sums tax-free or tax-deferred for decades. They contend it promotes fairness in the tax system and ensures that tax benefits for retirement savings are primarily directed towards middle-class and working families, aligning with the original intent of these accounts.
Opponents contend
Opponents might argue that these provisions represent an overreach into private savings, penalizing successful long-term investing and potentially discouraging future savings. They may also raise concerns about the complexity of implementation for both taxpayers and financial institutions, and the potential for these rules to be expanded to affect a broader range of savers in the future, disrupting established financial planning.
The bill is relatively short but introduces complex new sections to the tax code, requiring careful reading to understand its full implications for affected individuals and financial institutions.
Section 1(a), adding new Section 409B to the Internal Revenue Code.
New Contribution Limit for Individual Retirement Plans
This provision prevents high-income individuals from making further contributions to their Individual Retirement Plans (IRAs) if their total vested balance across all retirement accounts (including 401(k)s, 403(b)s, 457(b)s, and IRAs) exceeds $10 million. This limit applies to taxpayers whose modified adjusted gross income (MAGI) in the preceding year exceeds certain thresholds ($225,000 for married filing separately, $425,000 for head of household, $450,000 for married filing jointly, $400,000 for others).
Supporters argue
Supporters argue this closes a loophole allowing the ultra-wealthy to use IRAs as tax shelters, ensuring retirement accounts serve their intended purpose of providing retirement security rather than facilitating multi-generational wealth transfer.
Critics contend
Critics might contend that this limits individual financial freedom and penalizes successful long-term investing, potentially pushing capital into less productive or less transparent investment vehicles.
Tradeoffs
Balances the goal of preventing tax-advantaged wealth accumulation with concerns about government interference in private savings and potential administrative burdens.
Section 1(b), amending Section 4973 of the Internal Revenue Code.
6% Excise Tax on Excess IRA Contributions
This provision imposes a 6% excise tax on any contributions made to an individual retirement plan that exceed the new limits established in Section 409B. This tax applies annually to the excess amount until it is distributed or corrected. It aims to enforce the new contribution limits by creating a financial penalty for non-compliance.
Section 2(a), adding new Section 4974(f) to the Internal Revenue Code.
Accelerated Minimum Distributions for Large Retirement Accounts
This provision mandates increased minimum required distributions (MRDs) for high-income taxpayers whose aggregate retirement account balances exceed $10 million. If the balance is between $10 million and $20 million, 50% of the excess over $10 million must be distributed. If the balance exceeds $20 million, the excess over $20 million in Roth accounts must be distributed first, followed by 50% of the remaining excess over $10 million (after Roth distributions). These distributions are required regardless of the taxpayer's age or other existing MRD rules.
Section 2(b)(1), amending Sections 401(a), 403(b), and 457(d)(1) of the Internal Revenue Code.
Mandated Distribution Option for Plans
This provision requires qualified defined contribution plans, 403(b) annuity contracts, and governmental 457(b) plans to allow participants who are subject to the new increased minimum distribution requirements (under Section 4974(f)) to elect to receive a distribution from their account balance. This ensures that individuals can comply with the new MRD rules even if their plan would otherwise restrict such distributions (e.g., due to in-service withdrawal limitations). An exception is made for certain employee stock ownership plan (ESOP) balances.
Section 2(b)(2), amending Section 72(t)(2) of the Internal Revenue Code.
Exemption for New MRDs from Early Withdrawal Penalty
This provision exempts distributions made to satisfy the new increased minimum required distribution rules (under Section 4974(f)) from the 10% additional tax on early distributions (typically applied before age 59 1/2). This ensures that individuals are not penalized for complying with a mandatory distribution requirement.
Section 2(b)(3), amending Section 3405(b) of the Internal Revenue Code.
Mandatory 37% Withholding on New MRDs
This provision mandates a 37% withholding rate for distributions made under the new immediate distribution rights (to meet Section 4974(f) requirements), treating them as nonperiodic distributions. Taxpayers are not allowed to elect out of this withholding. An exception is made for qualified distributions from designated Roth accounts.
The $10,000,000 applicable dollar amount for contribution limits and the various modified adjusted gross income thresholds for "applicable taxpayer" status will be adjusted annually for inflation starting in 2027. The $10M amount is rounded to the next lowest multiple of $250,000, and MAGI thresholds to the next lowest multiple of $1,000.
Section 1(a), new IRC Section 409B(b)(5).
Why it matters:This is standard legislative practice to define how indexed amounts are adjusted over time.
Case for: Ensures the limits remain relevant over time and are not eroded by inflation, preventing more taxpayers from being unexpectedly caught by the rules due to changes in purchasing power.
Case against: The "next lowest multiple" rounding could slightly accelerate the erosion of the real value of the thresholds compared to standard rounding, though the impact is minor.
Estimated impact: Maintains the real value of the thresholds, preventing 'bracket creep' for these specific limits over time.
This subsection details how the increased minimum required distributions are coordinated with existing MRD rules and how they are allocated across different retirement plans. It specifies that the taxpayer can generally choose how to allocate the increase, but the "applicable Roth excess amount" must be allocated first to Roth IRAs and then to designated Roth accounts.
Section 2(a), new IRC Section 4974(f)(4).
Why it matters:These are necessary technical details for the practical implementation of complex distribution requirements across multiple account types.
Case for: Provides flexibility for taxpayers to manage their distributions while ensuring that Roth accounts, which are tax-free upon distribution, are prioritized for liquidation when balances are extremely high, aligning with the bill's intent to accelerate taxation.
Case against: The complexity of these rules could lead to errors and increased compliance costs for both taxpayers and plan administrators, potentially causing confusion and unintended tax consequences.
Estimated impact: Directs the taxation of specific account types first, impacting the timing and tax-efficiency of distributions for the wealthiest individuals.
The increase in minimum required distributions shall not be allocated to portions of account balances in Employee Stock Ownership Plans (ESOPs) that are invested in employer securities which are not readily tradable on an established securities market. This exception does not apply to amounts attributable to rollover contributions made after the enactment date.
Section 2(a), new IRC Section 4974(f)(4)(B)(iii).
Why it matters:Addresses a specific liquidity concern for a particular type of retirement plan asset, which is often illiquid.
Case for: Prevents forced sales of illiquid employer stock, which could harm employee ownership structures and the underlying companies, especially private ones, by forcing them to liquidate assets at potentially unfavorable times.
Case against: Critics might argue this creates a loophole for certain wealthy individuals to continue deferring taxes on illiquid assets, potentially undermining the bill's intent to accelerate taxation of large retirement balances.
Estimated impact: Protects illiquid ESOP holdings from forced distributions, preserving employee ownership structures and the financial stability of companies with such plans.