Info Regarding H.R. 4297 – Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”)

(a) Repeal of Income Limitations.–

(1) IN GENERAL.–Paragraph (3) of section 408A(c) (relating to limits based on modified adjusted gross income) is amended by striking subparagraph (B) and redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively.

(2) CONFORMING AMENDMENT.–Clause (i) of section 408A(c)(3)(B) (as redesignated by paragraph (1)) is amended by striking “except that–” and all that follows and inserting “except that any amount included in gross income under subsection (d)(3) shall not be taken into account, and”.

(b) Rollovers to a Roth IRA From an IRA Other Than a Roth IRA.–

(1) IN GENERAL.–Clause (iii) of section 408A(d)(3)(A) (relating to rollovers from an IRA other than a Roth IRA) is amended to read as follows:

“(iii) unless the taxpayer elects not to have this clause apply, any amount required to be included in gross income for any taxable year beginning in 2010 by reason of this paragraph shall be so included ratably over the 2-taxable-year period beginning with the first taxable year beginning in 2011.”.

(2) CONFORMING AMENDMENTS.–

(A) Clause (i) of section 408A(d)(3)(E) is amended to read as follows:

“(i) ACCELERATION OF INCLUSION.–

“(I) IN GENERAL.–The amount otherwise required to be included in gross income for any taxable year beginning in 2010 or the first taxable year in the 2-year period under subparagraph (A)(iii) shall be increased by the aggregate distributions from Roth IRAs for such taxable year which are allocable under paragraph (4) to the portion of such qualified rollover contribution required to be included in gross income under subparagraph (A)(i).

“(II) LIMITATION ON AGGREGATE AMOUNT INCLUDED.–The amount required to be included

[Page: H2215] GPO’s PDFin gross income for any taxable year under subparagraph (A)(iii) shall not exceed the aggregate amount required to be included in gross income under subparagraph (A)(iii) for all taxable years in the 2-year period (without regard to subclause (I)) reduced by amounts included for all preceding taxable years.”.
(B) The heading for section 408A(d)(3)(E) is amended by striking “4-YEAR” and inserting “2-YEAR”.

PRESENT LAW
There are two general types of individual retirement arrangements (`IRAs’): traditional IRAs and Roth IRAs. The total amount that an individual may contribute to one or more IRAs for a year is generally limited to the lesser of: (1) a dollar amount ($4,000 for 2006); and (2) the amount of the individual’s compensation that is includible in gross income for the year. In the case of an individual who has attained age 50 before the end of the year, the dollar amount is increased by an additional amount ($1,000 for 2006). In the case of a married couple, contributions can be made up to the dollar limit for each spouse if the combined compensation of the spouses that is includible in gross income is at least equal to the contributed amount. IRA contributions in excess of the applicable limit are generally subject to an excise tax of six percent per year until withdrawn.

Contributions to a traditional IRA may or may not be deductible. The extent to which contributions to a traditional IRA are deductible depends on whether or not the individual (or the individual’s spouse) is an active participant in an employer-sponsored retirement plan and the taxpayer’s AGI. An individual may deduct his or her contributions to a traditional IRA if neither the individual nor the individual’s spouse is an active participant in an employer-sponsored retirement plan. If an individual or the individual’s spouse is an active participant in an employer-sponsored retirement plan, the deduction is phased out for taxpayers with AGI over certain levels. To the extent an individual does not or cannot make deductible contributions, the individual may make nondeductible contributions to a traditional IRA, subject to the maximum contribution limit. Distributions from a traditional IRA are includible in gross income to the extent not attributable to a return of nondeductible contributions.

Individuals with adjusted gross income (`AGI’) below certain levels may make contributions to a Roth IRA (up to the maximum IRA contribution limit). The maximum Roth IRA contribution is phased out between $150,000 to $160,000 of AGI in the case of married taxpayers filing a joint return and between $95,000 to $105,000 in the case of all other returns (except a separate return of a married individual). 541

[Footnote] Contributions to a Roth IRA are not deductible. Qualified distributions from a Roth IRA are excludable from gross income. Distributions from a Roth IRA that are not qualified distributions are includible in gross income to the extent attributable to earnings. In general, a qualified distribution is a distribution that is made on or after the individual attains age 59 1/2 , death, or disability or which is a qualified special purpose distribution. A distribution is not a qualified distribution if it is made within the five-taxable year period beginning with the taxable year for which an individual first made a contribution to a Roth IRA.

[Footnote 541: In the case of a married taxpayer filing a separate return, the phaseout range is $0 to $10,000 of AGI.]

A taxpayer with AGI of $100,000 or less may convert all or a portion of a traditional IRA to a Roth IRA. 542

[Footnote] The amount converted is treated as a distribution from the traditional IRA for income tax purposes, except that the 10-percent additional tax on early withdrawals does not apply.

[Footnote 542: Married taxpayers filing a separate return may not convert amounts in a traditional IRA into a Roth IRA.]

In the case of a distribution from a Roth IRA that is not a qualified distribution, certain ordering rules apply in determining the amount of the distribution that is includible in income. For this purpose, a distribution that is not a qualified distribution is treated as made in the following order: (1) regular Roth IRA contributions; (2) conversion contributions (on a first in, first out basis); and (3) earnings. To the extent a distribution is treated as made from a conversion contribution, it is treated as made first from the portion, if any, of the conversion contribution that was required to be included in income as a result of the conversion.

Includible amounts withdrawn from a traditional IRA or a Roth IRA before attainment of age 59 1/2 , death, or disability are subject to an additional 10-percent early withdrawal tax, unless an exception applies.

HOUSE BILL
No provision.

SENATE AMENDMENT
No provision.

CONFERENCE AGREEMENT
The conference agreement eliminates the income limits on conversions of traditional IRAs to Roth IRAs. 543

[Footnote] Thus, taxpayers may make such conversions without regard to their AGI.

[Footnote 543: Under the conference agreement, married taxpayers filing a separate return may convert amounts in a traditional IRA into a Roth IRA.]

For conversions occurring in 2010, unless a taxpayer elects otherwise, the amount includible in gross income as a result of the conversion is included ratably in 2011 and 2012. That is, unless a taxpayer elects otherwise, none of the amount includible in gross income as a result of a conversion occurring in 2010 is included in income in 2010, and half of the income resulting from the conversion is includible in gross income in 2011 and half in 2012. However, income inclusion is accelerated if converted amounts are distributed before 2012. 544

[Footnote] In that case, the amount included in income in the year of the distribution is increased by the amount distributed, and the amount included in income in 2012 (or 2011 and 2012 in the case of a distribution in 2010) is the lesser of: (1) half of the amount includible in income as a result of the conversion; and (2) the remaining portion of such amount not already included in income. The following example illustrates the application of the accelerated inclusion rule.

[Footnote 544: Whether a distribution consists of converted amounts is determined under the present-law ordering rules.]

Example.–Taxpayer A has a traditional IRA with a value of $100, consisting of deductible contributions and earnings. A does not have a Roth IRA. A converts the traditional IRA to a Roth IRA in 2010, and, as a result of the conversion, $100 is includible in gross income. Unless A elects otherwise, $50 of the income resulting from the conversion is included in income in 2011 and $50 in 2012. Later in 2010, A takes a $20 distribution, which is not a qualified distribution and all of which, under the ordering rules, is attributable to amounts includible in gross income as a result of the conversion. Under the accelerated inclusion rule, $20 is included in income in 2010. The amount included in income in 2011 is the lesser of (1) $50 (half of the income resulting from the conversion) or (2) $70 (the remaining income from the conversion), or $50. The amount included in income in 2012 is the lesser of (1) $50 (half of the income resulting from the conversion) or (2) $30 (the remaining income from the conversion, i.e., $100–$70 ($20 included in income in 2010 and $50 included in income in 2011)), or $30.