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Large IRAs and High-Income Retirement Savers Targeted by Amendment to Budget Reconciliation Bill

Last week, Richard Neal (D-Mass), chairman of the House Committee on Ways and Means, unveiled an amendment to help fund the $3.5 trillion budget reconciliation legislation that is currently under consideration in Congress. The Neal amendment would make dramatic changes to the rules governing retirement plans for certain high-income taxpayers by imposing new asset limitations and prohibitions. It would also require distributions and IRA contribution limitations for certain individuals with retirement savings over $10 million, require distributions of Roth balances in excess of $20 million and end the practice of so-called “back-door” Roth conversions. These changes aim to effectively prohibit mega IRAs, which were the subject of extensive press reports earlier this year following ProPublica’s revelation of multiple large IRAs, including Peter Thiel’s $5 billion mega-Roth IRA.

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NY State Bar Association Issues Report on Section 457A and Deferred Compensation Paid by Investment Funds and Other Service Recipients


Time to Read: 1 minutes Practices: Tax

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Earlier today, October 5, 2009, the Tax Section of the New York State Bar Association (NYSBA) filed with the US Department of the Treasury, the Internal Revenue Service, and Congress a comprehensive Report on Section 457A, which highlights a number of issues, interpretive matters, pitfalls, and other matters relating to the statute. The Report may become a primary point of reference for many tax advisors dealing with Section 457A.
[Read the Report's Cover Letter] | [Access the Full Report]

Section 457A was enacted last year as a part of the Emergency Economic Stabilization Act of 2008 (commonly referred to as the “recovery” or “bailout” legislation, enacted on October 3, 2008). Section 457A follows Section 409A, enacted several years ago, which became the first comprehensive codification of the rules governing the federal income taxation of nonqualified deferred compensation.

Although initially aimed at reining in substantial deferrals of compensation paid to managers of hedge funds (and other funds), Section 457A as ultimately enacted has grown in scope, potentially covering certain non-U.S. operating companies and domestic investment funds, among others. (See Ropes & Gray's previously issued alerts regarding Section 457A, including IRS Releases Further Guidance Affecting Offshore Hedge Fund And Other Pooled Investment Vehicle Deferrals, Bailout Bill Contains Many Tax-Related Provisions, and Congress Blocks Offshore Hedge Fund Deferrals.)

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