The proposal would end backdoor Roth conversions and implement new rules on Roth conversions. What would this mean for retirees?

If the final proposal includes limiting Roth conversions, it is likely going to impact high income earners only. Taxpayers with incomes greater than $400,000 – or $450,000 jointly – might be restricted from making Roth conversions all together.

Another consideration is restricting Roth conversions of after-tax savings in an IRA or 401(k). The average earner and the mass affluent earning less than $400,000 annually would likely still be able to benefit from Roth conversions.

Most people making Roth conversions today fall under this category, so financial advisors and many of their clients would still be able to make use of conversions. It's often recommended for retirees to make conversions after retirement when income is lower and before required minimum distributions start, so Roth conversions could still be considered a beneficial planning tool for many retirees.

In addition to Roth IRA changes, the Build Back Better Act would increase the required minimum distribution for IRAs, Roth IRAs, and defined contribution plans. What impact would this have on retirement planning?

Under the proposal, retirees with defined contribution accounts over $10 million would increase the RMD to equal 50 percent of that amount. Further, if combined accounts have more than $20 million, the additional RMD requirements would apply to the Roth portions of the amount. This rule would be implemented for retirees in this group to accelerate their tax bill  on the tax-deferred money.

For people with Roth accounts, the extra-large RMDs would be tax-free, but the money would need to be reinvested and to create taxable income moving forward. People with very large retirement accounts where none of it is Roth money could face a larger tax bill.

How does Build Back Better compare to other retirement legislation in Congress, like the SECURE Act 2.0 and RISE Act?

The tax changes proposed within the Build Back Better Act seem to have a different intent than recent legislation such as the SECURE Act 2.0, which focused on the shifting demographics in the U.S. The SECURE Act 2.0 and other legislation intends to help the average taxpayer given recent demographic changes, while the Build Back Better Act seems to be addressing the wealthy and ultra-wealthy.

For example, since people are living longer, the SECURE Act 2.0 increased the RMD age and catch-up contributions to allow near-retirees to save more money. On the other hand, the Build Back Better Act seems to prioritize raising revenue and fairness. The potential changes to Roth conversions are a good example of trying to address fairness and limit conversions for people with very large incomes.

As for revenue enhancers, the current version of the Build Back Better Act includes a 5% surcharge on high income individuals and trusts (over $10 million in AGI).  The extra RMD for $10 million accounts and up would be an accelerator of tax revenue for the IRS.

What should retirement plan advisors be on the lookout for from this bill?

It's important for financial advisors to stay informed on this topic to help clients who may have to make multi-million-dollar withdrawals find ways to reinvest the money while minimizing taxes – perhaps via municipal bonds or qualified charitable distributions.

Retirement plan advisors should keep pace with the ever-evolving bill; however, general advice about retirement planning likely will not result in meaningful change for most clients. It may impact behaviors for the top .1 percent of an advisor's client base.