Sponsor Statement for HB 449

An Act Relating to Certain Individual Retirement Accounts

Under the Alaska Exemptions Act, retirement plans are protected from creditor claims. However, it does so by listing each type of retirement plan by reference to the Internal Revenue Code section governing that plan.

The 1997 Taxpayer Relief Act passed by Congress created the Roth IRA account under Internal Revenue Code section 408A. This section will allow taxpayers to make nondeductible contributions to a Roth IRA and then later take all distributions from the account tax-free subject to certain specified conditions. These qualified distributions must be included in gross income but, for 1998 only, the distributions will be taken into income over four years rather than the customary one year.

This is a great opportunity to convert all future IRA account earnings into tax-free income and spread the current tax bite over four years. However, those Alaskans who take advantage of this are removing their assets from the list of those protected under state law.

This option is available only during 1998. Beginning in 1999, distributions from regular IRA accounts that are rolled into Roth IRAs will be fully taxed in the year of the rollover. In order for Alaskans to maintain their protection while taking advantage of this opportunity legislation must be passed this session.