CRS Updates Report on IRAs

The Congressional Research Service (CRS) has released an updated version of its annual report on traditional and Roth IRAs. The CRS treats it as a primer that explains the accounts and the laws and regulations governing them, with new information added to account for developments since the last report that affect them. 

“Traditional and Roth Individual Retirement Accounts (IRAs): A Primer” describes the primary features of traditional IRAs and Roth IRAs and explains IRAs’ eligibility requirements, contribution limits, tax deductibility of contributions, withdrawal rules and data on the accounts’ holdings. The report also describes the Retirement Savings Contribution Credit (also known as the Saver’s Credit) and explains provisions enacted after certain federally declared disasters.

2022 Limits

The report contains updated information that refers to the benefits thresholds and limits relevant to IRAs that the IRS sets annually.   

Specifically, it says that in 2022:

• The annual contribution limit is $6,000.  
• Individuals aged 50 and older may make additional annual $1,000 catch-up contributions. 
• For households that file a joint return, spouses may contribute an amount equal to the couple’s total compensation (reduced by the spouse’s IRA contributions) or the contribution limit ($6,000 each, if younger than the age of 50, and $7,000 each, if aged 50 and older), whichever is lower. 
• Contributions that exceed the contribution limit and are not withdrawn by the due date for that year’s tax return are considered excess contributions and are subject to a 6% “excess contribution” tax. 
• Contributions made between January 1 and April 15 may be designated for either the current year or the previous year.

The report also notes that Roth IRAs have income limits for eligibility and includes information concerning the modified AGIs at which individuals may make the maximum contribution and the ranges in which this contribution limit is reduced.

SECURE Act

The report contains references to relevant provisions of the Setting Every Community up for Retirement Enhancement Act of 2019 (SECURE Act), and outlines provisions related to IRAs: 

• repeal of the maximum age at which individuals can contribute to traditional IRAs; 
• increasing the age at which required minimum distributions (RMDs) from traditional IRAs must begin; 
• treating certain nontuition fellowship and stipend payments as compensation for IRA contribution purposes; 
• treating tax-exempt “difficulty of care” payments to home health care providers as compensation for nondeductible IRA contribution limit purposes; 
• allowing penalty-free early withdrawals for qualifying birth and adoption purposes; and
• modifying distribution rules for inherited IRAs. 

Inherited IRAs. The report discusses the effect of Section 401 of the SECURE Act, which modified distribution rules for designated beneficiaries of account owners who die after Dec. 31, 2019, and outlines the distribution rules that apply to those accounts. 

For instance, under the SECURE Act, a designated non-spouse beneficiary of an account owner who dies after Dec. 31, 2019, must distribute the entire account balance by the end of the 10th calendar year following the account owner’s year of death, regardless of whether the original account owner dies before or after the required beginning date. Beneficiaries may choose the frequency and timing of distributions so long as the account is depleted within the 10-year period. 

It continues that the SECURE Act allows for exceptions to the 10-year rule for an eligible designated beneficiary, which include: 

• a surviving spouse;
• the account owner’s child who has not reached the age of majority;
• an individual who is disabled;
• a chronically ill individual; and 
• an individual who is not more than 10 years younger than the account owner. 

Eligible designated beneficiaries, it says, may generally take distributions over their remaining life expectancy rather than adhere to the 10-year rule. A minor child of an account owner who is a beneficiary may calculate distributions based on his or her remaining life expectancy until reaching the age of majority (age 18 in most states), at which point the remaining account balance must be distributed within 10 years.

Disaster-Related Distributions

The report also contains an appendix that provides information concerning qualified distributions related to federally declared disasters and COVID-19; the information is updated to reflect laws and regulations that have been put in place since the last report the CRS issued. 

Division Q of the Further Consolidated Appropriations Act of 2020 provides that qualified individuals could take penalty-free distributions up to $100,000 from their retirement plans, including traditional and Roth IRAs.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides that: 

• Qualified individuals could take penalty-free distributions up to $100,000 from their retirement plans, including traditional and Roth IRAs.
• Distributions were to be reported as income either in the year received or over three years. 
• Part or all of the distribution could be repaid within three years of receiving the distributions.

Title III of Division EE (the Taxpayer Certainty and Disaster Tax Relief Act of 2020) of the Consolidated Appropriations Act provides that:

• Qualified individuals could take penalty-free distributions up to $100,000 from their retirement plans, including traditional and Roth IRAs.
• Distributions were to be reported as income either in the year received or over three years.
• Part or all of the distribution could be repaid within three years of receiving the distributions.
• Qualified individuals who received hardship distributions or penalty-free IRA distributions within specified dates for the purposes of constructing or purchasing a principal residence but who were unable to do so due to the specified disasters could recontribute the amount of the distribution to a qualified plan or IRA.