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The end is nigh: Megabackdoor Roth. RIP

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  • The end is nigh: Megabackdoor Roth. RIP

    I cannot believe this made it thru, and there has been so little in the press lately…

    https://www.google.com/amp/s/www.wsj...ll-11637340203

  • #2
    Just a bill, still.

    Has to go to the Senate, which will almost certainly make changes.

    Ultimate fate? TBD. But no done deal.

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    • #3
      Just a bill, but one step closer. I am going to take one precautionary step as a result. By way of background, I have access to two MBDR accounts. One is automated, and if the law changes can be stopped immediately with no excess after tax left stranded in the pretax mix. I’ll leave that one alone for now. However, the other requires a painfully slow manual process with notarized signatures by both spouses. I typically transfer those after tax funds once a year in January. This year I’m going to do it in December and stop the after tax contributions until the Senate disposes of the bill. It is a small matter, but just don’t want to keep track of the after tax money in the account. It will be easy to restart the payroll deductions if the bill doesn’t pass.

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      • #4
        It hasn’t been in the press because a MBDR may seem well known in the WCI and finance sphere but it’s completely unknown to the vast majority of Americans.

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        • #5
          can't access the article, can you summarize? that stinks but yes still needs to go through the senate. I see from the comments and headline this eliminates the megabackdoor. What about just the backdoor Roth?

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          • #6
            It gets very little press because it affects very few ppl. At one point we looked into it and it just made sense to keep doing PS, like it does for most ppl.

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            • #7
              Question:

              Can you transfer money from your 401K to a Roth 401K?

              Can you transfer money from your Roth 401K to your Roth IRA?

              Obviously taxes paid now (anything Roth) or later (traditional) will occur. I seem to find conflicting information.

              Have a good day.

              Comment


              • #8
                Originally posted by JBME View Post
                can't access the article, can you summarize? that stinks but yes still needs to go through the senate. I see from the comments and headline this eliminates the megabackdoor. What about just the backdoor Roth?
                Mega and backdoor are both out. Passed house - to the senate now.

                There’s other articles that are similar if interested.

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                • #9
                  Originally posted by Bev View Post
                  Question:

                  Can you transfer money from your 401K to a Roth 401K?

                  Can you transfer money from your Roth 401K to your Roth IRA?

                  Obviously taxes paid now (anything Roth) or later (traditional) will occur. I seem to find conflicting information.

                  Have a good day.
                  these are questions that would be answered by the summary plan document. I think in many plans you can with rollover money. For instance, I worked at employer A for several years and built up a pre-tax balance of 100k. Moved to employer B and moved the $100k over to the employer B 401k. At employer B, I contribute pre-tax to their retirement plan and get a match. That money I cannot rollover to a Roth IRA. However, that $100k from employer A is in a separate bucket and I am allowed to roll as much or as little of that as I want over to my Roth IRA. As you noted, yes I'll pay the taxes but this is allowed

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                  • #10
                    Originally posted by JBME View Post
                    can't access the article, can you summarize? that stinks but yes still needs to go through the senate. I see from the comments and headline this eliminates the megabackdoor. What about just the backdoor Roth?
                    As best I can tell, MBDR out for 2022, but BD Roth has a phase in over a decade. There is another provision That affects ability to contribute over $10M, but that is also deferred.

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                    • #11
                      Originally posted by VentAlarm View Post

                      Mega and backdoor are both out. Passed house - to the senate now.

                      There’s other articles that are similar if interested.
                      thank you. I did a little googling and from what I can see the megabackdoor Roth is dead as of 12/31/2021 but the backdoor Roth isn't dead until 12/31/2031. So it looks like we have 10 more years of backdoor Roth (better than nothing):

                      Build Back Better Act would curb retirement plans for the wealthy (cnbc.com)
                      House Approves BBB Bill with Limits on ‘Mega’ and Back-Door Roths | AMERICAN SOCIETY OF PENSION PROFESSIONALS & ACTUARIES (asppa-net.org)

                      Needless to say, a lot can change in 10 years. who knows. But losing the megabackdoor Roth stinks for the few who have access to it. I was blessed to have it for 3 years at a former employer but lost it when I took a new job that did not offer it as an option in their plan

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                      • #12
                        Hmmm. My understanding from these and prior articles is that ALL after tax contributions are prohibited starting in 2022. Can somebody cite an article or the post the part of the bill that shows the BDR is still allowed thru 2031? Would love to be wrong on this.

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                        • #13
                          I don't believe employee after-tax contributions and traditional IRA non-deductible contributions will be prohibited. Instead it will only prohibit employee after-tax (in-plan Roth rollovers and in-service rollovers to a Roth IRA) and Roth conversions of traditional IRA basis to a Roth IRA.

                          Corrected my omission based on the catch by
                          jacoavlu
                          Physician
                          jacoavlu.
                          spiritrider
                          Member
                          Last edited by spiritrider; 11-20-2021, 10:05 AM.

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                          • #14
                            Originally posted by GasFIRE View Post
                            Hmmm. My understanding from these and prior articles is that ALL after tax contributions are prohibited starting in 2022. Can somebody cite an article or the post the part of the bill that shows the BDR is still allowed thru 2031? Would love to be wrong on this.
                            In the first link I posted:

                            ”Secondly, savers would be unable to convert pre-tax to Roth savings in IRAs and workplace retirement plans if their taxable income exceeds $400,000 (single individuals), $450,000 (married couples), or $425,000 (heads of household). It would start after Dec. 31, 2031.”

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                            • #15
                              There are a lot of bills that pass the house but never make it through the senate. I would predict that this would be one of them. I am much more concerned about the extra money that is going to be spent on the irs to target high income earners. It is ridiculous how we all have to spend so many hours and so much money just to try to file our taxes correctly. It's going to mean even time and money if you have to respond to an audit. If they really wanted to audit people who weren't paying their taxes correctly, I think that they would have a much higher yield if they focused on people and businesses who deal in cash transactions rather then just looking above a certain income level.

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