Q4 2021 IRA, Infrastructure Bill Legislation, and McNulty IRS Ruling Update

There are two infrastructure bills and a recent IRS ruling investors have been discussing. Since there has been a constant state of flux of these bills and coverage, our customers have had a lot of frequently asked questions we would like to clear up. *This article was updated on January 5th, 2022*

Bipartisan Infrastructure Bill, which has already passed

• The bill offers a definition of what a cryptocurrency broker is which the Blockchain Caucus would like to further clarify.
• Crypto investors are concerned with how wide and vague the broker regulation could be.
• If you are interested in defining the crypto provisions, please show your support to members of the Blockchain Caucus or encourage your representatives to listen and learn about the finer points of cryptocurrency. 
• This bill has nothing to do with IRA laws. To review IRA provisions, please review the next section and Build Back Better Bill.

Build Back Better Bill, also known as the BBB or Democrat’s “Reconciliation Bill”

This bill has passed the House BUT NOT the Senate. It is not yet law. Provisions are subject to change. The reconciliation process means only 51 votes are necessary to pass it, such as a 50 vote simple majority plus the Vice President's tie-breaking vote. Looking to 2022, Democratic leaders have signaled the recent bill is dead and is not moving forward in public statements about their agenda. 

Removed from the Bill before it was deprioritized

• Self Directed IRA Provisions
• Ban on IRA accredited investments 
• Language affecting the IRA LLC

Still in the bill before it was deprioritized. 

• Statue of Limitations doubles from three years to six years from prohibited transactions violations or missed taxes inside IRAs.
• Those with $10 million combined balances between IRAs and defined contributions plans cannot contribute to an IRA if they are considered high-income earners.*
• Roth Conversions Stopped for High Income Earners* 2032
• *A high-income earner is defined in the bill by... 
  • Single filers with modified adjusted gross income (MAGI) over $400,000.
  • Joint filers with MAGI over $450,000.
  • Heads of households with MAGI over $425,000.
• No Backdoor Roths in 2022 and beyond if the bill passes
• No Megabackdoor Roths in 2022 and beyond if the bill passes

I’m still concerned about this, what can I do? The Self-Directed IRA provisions have been removed, but if you are concerned about them, please contact your closest member in the House Ways and Means Committee and your US Senators. 

• “I would like to make sure the restrictions in 138312 & 138314 on alternative and private market investments stay out of the Build Back Better Bill. These give me the flexibility to invest how I want with my retirement funds.”
• “I would like to make sure the restrictions on alternative and private market investments for IRAs in section 138312 & 138314 stay out of the final version of the bill. It was promised that my taxes would not be raised if I make under $400,000 per year.”

McNulty v. Commissioner, 157 T.C. No. 10

What the ruling did...

• Distributed a woman's IRA with a value of $300,000
• Cites 408 (m) as the reason for distribution, a well-established rule on collectibles that should have been complied with already well before 2015.
• Express concerns with both the custodian and the client, and the IRA LLC does not free either allow the custodian to engage in misleading marketing, or the client to plead ignorance to well-established collectible rules because of misleading marketing.
• The term "unfettered access" was used frequently when related to the investor keeping their metals at home.

What the ruling did not do...

• Invalidate the IRA LLC as a structure recognized by the IRS
• Automatically distribute other American's IRA owners assets of any kind
• Force customers to move assets out of an IRA LLC, as long as they are well in compliance with prohibited transaction rules.
• Force compliant IRA investors to Solo 401(k)s, also known as "EQRPs" in some marketing.

How is Rocket Dollar monitoring this situation?

It is very important that any investor choosing the IRA LLC is educated on the rules related to prohibited transactions. At Rocket Dollar, we believe it is very important to educate investors on these rules, on both the potential and limitations for the account. We are also expanding direct custody options for investors that wish to invest through a more limited structure. While direct custody investments are by no means free of prohibited transaction risks to the investor, a custodian deal review can provide extra checks for investors who are not yet ready or do not wish to invest with an IRA LLC. 

We have had a variety of webinars on this topic to educate investors and will work with our custody partners on both current and upcoming regulations. 

While this ruling does not at all relate to cryptocurrency, and there is no mention of cryptocurrency in current collectible rules, the IRS has always remained concerned with the physical possession of assets or assets kept around the home. Cryptocurrency investors should always use caution with assets that are not stored on a centralized exchange authority. The term "unfettered access" could be used to apply to other asset classes outside of precious metals.