Increase in minimum required distributions for high-income taxpayers with large retirement account balances

(a) In general Section 4974 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (f) Increase in minimum required distributions for high-income taxpayers with large aggregate account balances (1) In general If this subsection applies to a payee who is an applicable taxpayer (as defined in section 409B(b)(4)) for a taxable year— (A) all applicable retirement plans (other than individual retirement accounts) of the payee taken into account in computing the excess described in paragraph (3)(A) shall be treated as 1 plan solely for purposes of applying this section to the increase in minimum required distributions for such taxable year determined under subparagraph (B), and (B) the minimum required distributions under this section for all plans treated as 1 plan under subparagraph (A) with respect to such payee for such taxable year shall be increased by the excess (if any) of— (i) the sum of— (I) if paragraph (2) applies to such taxable year, the applicable Roth excess amount, plus (II) 50 percent of the excess determined under paragraph (3)(A), reduced by the applicable Roth excess amount, over (ii) the sum of the minimum required distributions (determined without regard to this subsection) for all such plans. (2) Applicable Roth excess amount (A) Application For purposes of paragraph (1)(B)(i), this paragraph applies to a taxable year of a payee if the aggregate vested balances to the credit of the payee (whether as a participant, owner, or beneficiary) in all applicable retirement plans (determined as of the close of the calendar year preceding the calendar year in which the taxable year begins) exceed 200 percent of the applicable dollar amount for the calendar year in which the taxable year begins. (B) Applicable Roth excess amount The applicable Roth excess amount for any taxable year to which this paragraph applies is an amount equal to the lesser of— (i) the excess determined under subparagraph (A), or (ii) the aggregate balances to the credit of the payee (whether as a participant, owner, or beneficiary) in all Roth IRAs and designated Roth accounts (within the meaning of section 402A) as of the close of the calendar year preceding the calendar year in which the taxable year begins. (3) Application This subsection shall apply to a payee for a taxable year— (A) if the aggregate vested balances to the credit of the payee (whether as a participant, owner, or beneficiary) in all applicable retirement plans (determined as of the close of the calendar year preceding the calendar year in which the taxable year begins) exceed the applicable dollar amount for the calendar year in which the taxable year begins, and (B) without regard to whether amounts with respect to the payee are otherwise required to be distributed under section 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3), or 457(d)(2). (4) Coordination and allocation (A) Minimum distribution requirements If this subsection applies to a payee for any taxable year— (i) this section shall apply first to minimum required distributions determined without regard to this subsection and then to any increase in minimum required distributions by reason of this subsection, and (ii) nothing in this subsection shall be construed to affect the amount of any minimum required distribution determined without regard to this subsection or the plan or plans from which it is required to be distributed. (B) Allocation of increase in minimum required distributions (i) In general Except as provided in clauses (ii) and (iii), the taxpayer may, in such form and manner as the Secretary may prescribe, allocate any increase in minimum required distributions by reason of this subsection to applicable retirement plans treated as 1 plan under subparagraph (A) in such manner as the taxpayer chooses. (ii) Allocation to Roth IRAs and accounts In the case of a taxable year to which paragraph (2) applies, the portion of any increase in minimum required distributions by reason of this subsection equal to the applicable Roth excess amount shall be allocated first to Roth IRAs and then to designated Roth accounts (within the meaning of section 402A) of the payee. (iii) Special rules for employee stock ownership plans (I) In general In the case of a payee to which this subsection applies for any taxable year who has account balances in 1 or more employee stock ownership plans (as defined in section 4975(e)(7)) any portion of which is invested in employer securities which are not readily tradable on an established securities market, the increase in minimum required distributions by reason of this subsection shall not be allocated to any such portion. (II) Exception for amounts attributable to rollover Subclause (I) shall not apply to so much of any account balance as is attributable to a rollover contribution after the date of the enactment of this subsection to the account in accordance with section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16). (5) Distributions not eligible for rollovers For purposes of determining whether a distribution is an eligible rollover distribution, any distribution from an applicable retirement plan which is attributable to any increase in minimum required distributions by reason of this subsection shall be treated as a distribution required under section 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3), or 457(d)(2), whichever is applicable. (6) Roth distributions treated as qualified distributions In the case of any distribution from a Roth IRA, or designated Roth account (within the meaning of section 402A), of the payee by reason of the allocation of an increase in minimum required distributions under this subsection, such distribution shall be treated as a qualified distribution under section 408A(d)(2) or 402A(d)(2), as the case may be. (7) Definitions For purposes of this subsection, any term used in this subsection which is also used in section 409B shall have the same meaning as when such term is used in such section.. (b) Special rules (1) Distribution rights (A) Qualified trusts (i) In general Section 401(a) of the Internal Revenue Code of 1986 is amended by inserting after paragraph (39) the following new paragraph: (40) Immediate distribution right A trust forming part of a defined contribution plan shall not constitute a qualified trust under this section unless an employee who certifies to the plan that the employee is a taxpayer who is subject to the distribution requirements of section 4974(f) may elect to receive a distribution from the employee’s account balance under the plan in such amount as the employee may elect, including any amounts attributable to a qualified cash or deferred arrangement (as defined in subsection (k)(2)). The preceding sentence shall not apply in the case of any portion of an account balance to which section 4974(f)(4)(B)(iii)(I) applies.. (ii) Application to employee’s annuities Section 404(a)(2) of such Code is amended by striking and (37) and inserting (37), and (40). (B) Annuity contracts (i) Custodial accounts Section 403(b)(7)(A) of such Code is amended by adding at the end the following new flush sentence: Notwithstanding clause (i), the custodial account shall permit an employee who certifies that the employee is a taxpayer who is subject to the distribution requirements of section 4974(f) to elect to receive a distribution from the employee's custodial account in such amount as the employee may elect.. (ii) Annuity contracts Section 403(b)(11) of such Code is amended by adding at the end the following new sentence: Notwithstanding subparagraphs (A), (B), (C), and (D), the annuity contract shall permit an employee who certifies that the employee is a taxpayer who is subject to the distribution requirements of section 4974(f) to elect to receive a distribution of contributions made pursuant to a salary reduction agreement (within the meaning of section 402(g)(3)) from the employee's annuity contract in such amount as the employee may elect.. (C) Governmental plans Section 457(d)(1) of such Code is amended by adding at the end the following new flush sentence: Notwithstanding subparagraph (A), an eligible deferred compensation plan of an employer described in subsection (e)(1)(A) shall permit a participant or beneficiary who certifies that the participant or beneficiary is a taxpayer who is subject to the distribution requirements of section 4974(f) to elect to receive a distribution from the plan in such amount as the participant or beneficiary may elect.. (2) Exception from 10 percent additional tax on early distributions Section 72(t)(2) of such Code is amended by adding at the end the following new subparagraph: (O) Distributions of excess balances Distributions from an applicable retirement plan (within the meaning of section 409B)) to the extent such distributions for the taxable year do not exceed the amount required to be distributed from such plan under section 4974(f).. (3) Withholding Section 3405(b) of such Code is amended by adding at the end the following new paragraph: (3) Additional withholding for required distributions from high balance retirement accounts (A) In general For purposes of this section, a distribution pursuant to section 401(a)(40), the last sentence of section 403(b)(7)(A), the last sentence of section 403(b)(11), or the last sentence of section 457(d)(1) shall be treated as a nonperiodic distribution, except that in applying this subsection to such distribution— (i) paragraph (1) shall be applied by substituting 37 percent for 10 percent, and (ii) no election may be made under paragraph (2) with respect to such distribution. (B) Exception Subparagraph (A) shall not apply to any qualified distribution from a designated Roth account (within the meaning of section 402A).. (c) Conforming amendment Section 4974(b) of the Internal Revenue Code of 1986 is amended by striking section 401(a)(9) and inserting subsection (f) or section 401(a)(9). (d) Effective dates (1) In general The amendments made by subsection (a) shall apply to taxable years beginning after December 31, 2033. (2) Plan requirements The amendments made by subsection (b) shall apply to plan years beginning after December 31, 2033.