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Proposed legislation and Backdoor Roths

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  • Proposed legislation and Backdoor Roths

    As you all know, there is a proposal in consideration that would get rid of backdoor Roths for the "rich."
    January 1st is right around the corner and my wife and I perform our backdoor Roths the first week of January.
    Wondering if a conversion before the legislation passes would be grandfathered in or would they force you to undo it after the fact?
    Of course all of this is theoretical and this may amount to nothing, but what if?
    Leaning towards doing the conversion as usual and letting the chips fall where they may and pickup the pieces if this law passes.
    Thoughts?
    Last edited by Batman; 11-13-2021, 11:41 AM.

  • #2
    If this legislation doesn’t pass by the end of December it is likely to wither and die. Congress will move on and they will start focusing on their re-election campaigns soon enough. In fact, I think with the latest inflation numbers, the likelihood of getting Manchin’s vote altogether has plummeted.

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    • #3
      The legislation as proposed does not prohibit non-deductible traditional IRA contributions and/or employee after-tax contributions. What it does is prohibit the Roth conversion of traditional IRA non-deductible basis and/or in-plan Roth rollovers/in-service rollovers to a Roth IRA of employee after-tax contributions.

      It is prudent if you will not have substantial pre-tax balances in all traditional, SEP and SIMPLE IRA accounts by 12/31/21 to:
      • Make a 2021 non-deductible traditional IRA contribution if you haven't already done so
      • Do a Roth conversion of your entire traditional, SEP and SIMPLE IRA accounts by 12/31. Otherwise, you will leave both non-deductible basis and pre-tax balances. Do in-plan Roth rollovers and/or in-service rollovers to Roth IRAs of after-tax contributions and earnings by 12/31/21. If you are allowed and timing works, you could do an in-service rollover of the after-tax contributions to a Roth IRA and earnings to a traditional IRA and then roll the latter back into the employer plan by 12/31/31. If you fail to do the latter, it will interfere with the Backdoor Roth.
      If this legislation as proposed passes, there will be no way to do any of this in (2021) 2022. Regardless of the year of contribution.
      spiritrider
      Member
      Last edited by spiritrider; 11-13-2021, 06:54 PM. Reason: As pointed out by @jacoavlu, I meant 2022 and not 2021

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      • #4
        Originally posted by spiritrider View Post
        [/LIST]If this legislation as proposed passes, there will be no way to do any of this in 2021. Regardless of the year of contribution.
        2021 or 2022?

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        • #5
          Oops, 2022

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