What if Backdoor Roth goes away?

[jreyno71]

Background: 3 years post-fellowship. Already maxed out employer 401k with 50% match and additional profit-sharing into 401k by my physician group. I officially dumped my whole life insurance policy today (Thanks, WCI !!) and will be using those dollars to start and max backdoor Roths for both myself and my spouse (who doesn't work outside the home). Tallying up the dollars going into my 401k and the soon-to-be dual backdoor Roth IRAs, I'm approaching the 20% rule of thumb for savings of gross income - and that's all in tax-advantaged accounts. I do not as of yet have a taxable account.

Question: What if the Backdoor Roth goes away? I'm ~25 years from retirement and am just now opening my very first Roth account of any kind. If the loophole goes away tomorrow or in 5-15 years, I've still got a ways to go. What are my other options for tax-advantaged accounts?

- I'm peripherally familiar with the HSA / stealth IRA. For my family of 5, we actually use a fair amount of our contributed HSA dollars for healthcare expenses. Not sure I want to give up the tax efficiency of our family's healthcare dollars.

- My primary employer is the physician group mentioned above. I also have a 0.1 FTE appointment at a University/Medical School with an optional un-matched 403b. But after reading other articles on WCI, my take-away is that mixing 401k and 403b contributions still result in the same IRS contribution limit. Is that correct?

- Anything else? My wife does not work outside the home.

Or if the Backdoor Roth loophole goes away, should I just open a taxable account and adhere to the efficient tax practices delineated in other WCI / Bogleheads articles? I assume that all things being equal (in a world where backdoor Roth IRAs don't exist anymore), a taxable investing account is still better than a whole life insurance policy?

Thanks.

[VagabondMD]

Or if the Backdoor Roth loophole goes away, should I just open a taxable account and adhere to the efficient tax practices delineated in other WCI / Bogleheads articles?

Yes!

[jfoxcpacfp]

1. No reason to give up your HSA, but I would recommend you stop spending it and invest for the long term.


2. You can get up to $53k into separate 401k's/403b's at each non-related employer but you cannot contribute over $18k employee contributions to all accounts combined.


3. Not sure what you mean about "Anything else?"


4. If backdoor Roth's go away, we will deal with it then, same as we will if TIRAs go away, if the marginal tax rate is doubled, or if Congress decides to do away with tax deductions for charitable contributions or mortgage interest. We cannot build a plan on the myriad "what if's" but based only upon what we know today. (But, yes, almost anything is preferable to a whole life insurance policy.)

[PhysicianOnFIRE]

Don't fear the taxable account. A slight majority of all my investments are in a taxable account. If you stick with tax-efficient funds (total market, S&P 500, total international) your funds will grow with a tax drag of about 0.3% to 0.6% depending on your capital gains tax rate (which includes state income tax).

Depending on your tax bracket in retirement, you may be able to avoid paying taxes on the gains later on. See here and here.

Also, some unsolicited advice: You may assume you're ~25 years from retirement, but you might be thinking differently as you and your job evolve over the years. I would aim to save more than 20% to give yourself options in case circumstances change.

Ask anyone who has been around awhile. Many will regret excessive early spending; few will regret excessive early saving.

Best wishes,

-PoF

[jfoxcpacfp]

POF - so agree with your closing statement. I have yet to meet the person who has told me (s)he regrets saving so much in their early years. Many, many others wish the opposite.

[Hatton]

Also you can save with no limits in a taxable account.  You also have the flexibility to withdraw money at a younger age if you get burned out.

[TheGipper]

A better question may be should we still do our backdoor Roths in January or early in the year, if there is a decent chance it will be disallowed in 2017.  Will this force a non-desirable re-characterization back into a non-deductible traditional IRA and a permanent paperwork headache?  If this is likely, should we wait till later in 2017 to do our backdoor Roths?

[DMFA]

TheGipper wrote:

A better question may be should we still do our backdoor Roths in January or early in the year, if there is a decent chance it will be disallowed in 2017.  Will this force a non-desirable re-characterization back into a non-deductible traditional IRA and a permanent paperwork headache?  If this is likely, should we wait till later in 2017 to do our backdoor Roths?

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I think it would be unlikely that any law passed on the subject would be effective immediately.

Where's this fear coming from?  Are there rumblings that the IRS are trying to do away with the non-deductible re-characterization?  Or is it just because it's "too good to be true?"

[MochaDoc]

In response to Rex, in case this comment winds up someplace wonky:

Random but "Live Like You Were Dying" is a great song. Words to live by.

[PhysicianOnFIRE]

From Michael Kitces: President’s Budget Proposes Elimination Of Backdoor Roth, Stretch IRA, and Step-Up In Basis At Death!

[TheGipper]

Elimination of backdoor Roth has been proposed many times by Obama, has support of congressional Dems, and is not a priority of congressional Rs to oppose.  Its days could be numbered.

[jfoxcpacfp]

PhysicianOnFIRE wrote:

From Michael Kitces: President’s Budget Proposes Elimination Of Backdoor Roth, Stretch IRA, and Step-Up In Basis At Death!

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Yeah, that's from last February. Lots of "experts" have been predicting a second market crash since 2009, too. At some point, they will be right. In the meantime, I still say get as much as you can in a Roth by whatever means wherever possible and invest according to a plan.

[The White Coat Investor]

I expected to never contribute to a Roth IRA again after 2010. So it's all bonus to me anyway.

 

I wouldn't pay much attention to the president's proposed budget. A bigger issue for docs in those budgets is the proposed $57K limit to PSLF.

[Jim]

PhysicianOnFIRE wrote:

Many will regret excessive early spending; few will regret excessive early saving.

 

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Oh, if only I could get my wife to think this way!

 

[Zaphod]

It may go away but it doesnt make a lot of sense as it pulls forward tax revenues they otherwise wouldnt get. Its probably hard for them to to give that up.