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VUL better if Backdoor Roth Disappears?

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  • VUL better if Backdoor Roth Disappears?

    I’m new to the WCI scene; still figuring out the mistakes I’ve already made and the ones I’m trying to learn to avoid.

    I have a VUL (I know, I know). I never really understood how it worked which probably meant I never should have agreed to invest in it. Regardless I’ve been funding the VUL for 6 years. I’ve invested $405k and it has a present surrender value of $375k. I regret it now but it will neither make nor break my retirement.

    Is there anyway my VUL mistake looks any better if the Backdoor Roth goes away?

  • #2
    absolutely not.

    why would it?

    the concern about the bdrIRA going away is so overblown. i hope it doesn't and i think the policy isn't good. that said it's $12k/year for a couple.

    the absolutely worst case scenario here is that the bdrIRA is scrapped and instead of putting $12k of after tax money into it you put $12k of after tax money into a taxable account.

    backdoor Roth is a fraction of our savings each year, and i'm not the only one on this forum for whom that is true. it's icing on the cake, it's not the cake.

    Comment


    • #3
      Originally posted by MPMD View Post

      the absolutely worst case scenario here is that the bdrIRA is scrapped and instead of putting $12k of after tax money into it you put $12k of after tax money into a taxable account.
      Huh? I may not be understanding what you’re saying but I think taxable accounts are the next best thing, if not the best in some situations.
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Originally posted by jfoxcpacfp View Post

        Huh? I may not be understanding what you’re saying but I think taxable accounts are the next best thing, if not the best in some situations.
        that is what i'm saying.

        if the backdoor roth is outlawed tomorrow we can all just put that money in taxable.

        it isn't quite as good but it isn't the end of the world, and it won't be the difference between wealth and penury for anyone on this forum.

        Comment


        • #5
          If this legislation passes in its current form, it’s the Mega Backdoor Roth + backdoor Roth that would kick me in the teeth. In my case, that will likely be about $64k of after tax contributions and Roth conversions this year. If all that went away I would still find alternatives (profit sharing contributions, employee deferrals, taxable account, etc) but it would still be a substantial reduction in retirement account contributions as well as aggregate increases in taxes paid over time.

          With all that being said, I wouldn’t think about investing in VUL for a minute.

          Comment


          • #6
            Originally posted by BryanMD View Post
            Regardless I’ve been funding the VUL for 6 years. I’ve invested $405k and it has a present surrender value of $375k. I regret it now but it will neither make nor break my retirement.
            Sunk cost fallacy. You haven’t invested $405K into a variable universal life policy, you’ve spent $405K on a VUL.

            Comment


            • #7
              Originally posted by jfoxcpacfp View Post

              Huh? I may not be understanding what you’re saying but I think taxable accounts are the next best thing, if not the best in some situations.
              would be quite rare when someone on this forum should invest the $6k or $12k in taxable instead of backdoor Roth

              liquidity is good but folks here should be able to afford it

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              • #8
                If the BDR goes away invest the funds in a taxable account. VUL doesn't become a better choice just because a good one becomes unavailable.

                While you didn't ask, if you haven't stopped funding the VUL you should. If you haven't already, get term life insurance. Then either surrender the policy and invest the $375K in taxable or if you want to "break even" you can exchange the policy into a low cost variable annuity. Once the value equals your $405K basis, surrender it and invest in taxable.

                Comment


                • #9
                  Originally posted by jacoavlu View Post

                  would be quite rare when someone on this forum should invest the $6k or $12k in taxable instead of backdoor Roth

                  liquidity is good but folks here should be able to afford it
                  Maybe we’re saying the same thing. I think if Roths go away, and maybe if they don’t, taxable accounts may be the next best choice. No gov’t regulations on distribution, stepped-up basis, lower tax rates for LTCG and LTDIV.
                  Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                  Comment


                  • #10
                    Originally posted by jfoxcpacfp View Post

                    Maybe we’re saying the same thing. I think if Roths go away, and maybe if they don’t, taxable accounts may be the next best choice. No gov’t regulations on distribution, stepped-up basis, lower tax rates for LTCG and LTDIV.
                    it kinda sounds like you’re saying sometimes taxable is better than Roth

                    we’re not talking about a choice of pretax deferral vs Roth deferral. we’re talking about backdoor Roth which is use it or lose it

                    for folks with ample income backdoor Roth yearly is a no brainer until it’s not available. disagree?

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                    • #11
                      Originally posted by jacoavlu View Post

                      it kinda sounds like you’re saying sometimes taxable is better than Roth

                      we’re not talking about a choice of pretax deferral vs Roth deferral. we’re talking about backdoor Roth which is use it or lose it

                      for folks with ample income backdoor Roth yearly is a no brainer until it’s not available. disagree?
                      Of course not, that would be silly.

                      However, I am saying that you need to consider whether to put $$ in a taxable account before blindly doing a large Roth conversion, for example, now that we are subject to the strictures of the SECURE Act. Facts and circumstances matter on the trickle-down of the accounts. Do you want multi-generational, are you ok with the Roth balance being force-distributed over 10 years (depending upon more facts and circumstances, of course) - what’s the goal? Not a OSFA.
                      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                      • #12
                        When is taxable better than Roth?

                        ​​​​​

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                        • #13
                          Originally posted by jfoxcpacfp View Post

                          Of course not, that would be silly.

                          However, I am saying that you need to consider whether to put $$ in a taxable account before blindly doing a large Roth conversion, for example, now that we are subject to the strictures of the SECURE Act. Facts and circumstances matter on the trickle-down of the accounts. Do you want multi-generational, are you ok with the Roth balance being force-distributed over 10 years (depending upon more facts and circumstances, of course) - what’s the goal? Not a OSFA.
                          we agree

                          Roth conversion comes down to current marginal tax rate, vs wild ****************** guess about future rates and legislation

                          Comment


                          • #14
                            Originally posted by StarTrekDoc View Post
                            When is taxable better than Roth?

                            ​​​​​
                            when liquidity matters

                            Comment


                            • #15
                              Originally posted by StarTrekDoc View Post
                              When is taxable better than Roth?

                              ​​​​​
                              speaking for JFox but i think she kind of mispoke or is being misunderstood
                              i think what she said is that if Roth IRA goes away then taxable is clearly the next best bet.
                              my larger point is that a loss of $12k protected space really shouldn't make much difference for most people in the WCI community

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