HR6450-119

What This Bill Does

The bill creates a new rollover route in section 408(d)(3)(A) of the Internal Revenue Code. A full distribution from an eligible Roth IRA can be paid in a direct trustee-to-trustee transfer to a designated Roth account, including transfers in automatic portability transactions. An eligible Roth IRA must generally be the individuals only Roth IRA for that taxable year, other than an automatic-portability IRA, and must have a balance no greater than the small-balance threshold referenced in section 401(a)(31)(B)(ii). The bill coordinates the rule with section 402A, treats the rollover amount as investment in the contract, and adds holding-period treatment for automatic portability when the provider supplies the first taxable year of contribution to the source plan. The amendments apply to amounts paid or distributed after enactment.

Who Benefits and How

Retirement savers with eligible small Roth IRA balances gain another tax-preserving way to consolidate assets into workplace designated Roth accounts. Automatic portability providers and retirement plan recordkeepers gain a clearer statutory pathway for moving eligible Roth IRA assets into employer plans. Employers sponsoring designated Roth accounts benefit if small-balance account consolidation reduces orphan-account administration.

Who Bears the Burden and How

Retirement plan administrators, automatic portability providers, and recordkeepers must verify eligibility, execute direct trustee-to-trustee transfers, track basis as investment in the contract, and apply the special holding-period rule when source-plan information is supplied. Treasury and IRS must administer the new Code rules and may need guidance for eligibility, basis, and reporting mechanics.

Key Provisions

• Amends section 408(d)(3)(A) to allow direct trustee-to-trustee transfers from eligible Roth IRAs to designated Roth accounts.
• Extends the rollover route to automatic portability transactions.
• Defines eligible Roth IRA by limiting the taxpayer to one Roth IRA for the year and using the small-balance threshold tied to section 401(a)(31)(B)(ii).
• Provides basis treatment by treating rollover contributions as investment in the contract.
• Modifies the designated Roth holding-period rule when an automatic portability provider supplies the source-plan contribution year.