Conferees Reach Agreement on Tax Reconciliation Bill

May 10, 2006 – U.S. House and Senate negotiators reached an agreement Tuesday, May 9, on pending tax reconciliation legislation (H.R. 4297). Major provisions of this bill include the extension of certain tax breaks, among them the reduced rate of taxation for capital gains and dividend income, and relief from the alternative minimum (income) tax.

One item affecting the retirement services industry is a revenue-raising provision that would remove the income ceiling limiting the ability of some taxpayers to convert Traditional IRA assets to Roth IRAs. If approved and enacted, the $100,000 limitation will be removed beginning with 2010 tax years. Conversions in 2010 will qualify for optional ratable tax treatment over two years, in 2011 and 2012. The expectation that this would be a temporary provision is not reflected in the bill language.

Both the House and Senate must now approve the conference agreement with a full floor vote. The House may vote as early as today, the Senate as early as tomorrow.

It appears that an extension of the “Saver’s Credit,” which provided by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) allows certain lower-income taxpayers a tax credit for their retirement plan and IRA contributions, is no longer included in H.R. 4297. It is expected instead to be included in a second tax package. Some believe it may eventually be added to H.R. 2830, pension reform legislation now in conference committee.