This proposal has no effect on the current RMD rules so those still have to be taken at the same time contributions may be going in, unless the client becomes exempt from RMDs under the second proposal below (for retirement balances not exceeding $50,000).

You’ll have funds going in and out at the same time, so even though contributions are being made, they will not get the full benefit except that they will slightly reduce the RMD income if the contributions are deductible. That depends on whether they are active in a company plan and have income over the limits for deducting the contribution. If they cannot deduct (or don’t want to deduct) the contribution, they can still make a non-deductible contribution and do a back-door Roth conversion, but only after the RMD is taken since an RMD cannot be converted. Advisors would have to monitor this to make sure an RMD is not converted in the back-door Roth conversion process. The first dollars out of the traditional IRA will be deemed to go towards satisfying the RMD. Once that is done, then any other IRA funds can be converted to a Roth IRA.

Exempting RMDs For Total Retirement Balances Of $50,000 Or Less

This is another good proposal. The $50,000 amount is based on the value of all retirement funds at the end of the year and is to be adjusted for inflation for years after 2019. The exemption is not per IRA or plan. The exemption only applies to RMDs during the account owner’s lifetime. It does not apply to RMDs from inherited IRAs or plans.

While anyone with $50,000 or less in their retirement accounts will likely need this money and end up withdrawing anyway, at least they won’t have to bother with RMD rules, calculations and penalties, so that would at least make life a bit simpler for them. They can withdraw whatever amount they wish on their own schedule with no forced RMDs.

An employee with a company retirement plan would have to certify to the plan that they are exempt under this provision, since only the employee would know the total value of all their IRA and other retirement accounts. The RMD exemption would be evaluated each year based on the year-end balance in their retirement savings. It could be that the client is exempt one year but then in a future year their balance exceeds $50,000 and they are no longer exempt. Combining the two proposals here, a post 70½ IRA contribution (under the first proposal) could push the retirement account balance over $50,000 triggering the RMD requirement. This could be deterrent to contributing to a traditional IRA, but the client could contribute to a Roth IRA instead if he or she qualifies. Roth conversions could also lower the IRA balance to bring it under the $50,000. Advisors will have lots of good planning strategies here to share with clients if this becomes law.

Penalty-Free Retirement Withdrawals For Birth Or Adoption—Effective After 2018

This proposal adds another exception to the 10 percent penalty for early withdrawals for births or adoptions limited to $7,500 overall—not each year. The distribution would have to occur within one year from the birth or adoption. In addition, the distributions taken under this proposal could be repaid in a future year as a rollover.

Universal Savings Accounts

This is something new, but similar to Lifetime Savings Accounts that were proposed back in 2003, but were never enacted. These would be accounts that could grow tax-free like a Roth IRA, but better since anyone can qualify. The annual contribution would be limited to $2,500. Anyone who has the funds could easily boost tax-free savings, a real no-brainer. Great, if enacted.