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NEWS OF ENTREPRENEUR Peter Thiel’s $5 billion Roth account, which was funded with PayPal stock, has motivated Congress to look at restricting the growth and size of Roth accounts.
There’s talk of limiting Roth account balances to $5 million or $10 million. There are also proposals to limit both backdoor IRA conversions and so-called mega-backdoor conversions. The latter involves funding a nondeductible 401(k) and then immediately converting the money to a Roth. There’s even discussion of not allowing high-income workers to convert traditional IRAs to Roth accounts.
In recent years, Congress has nixed Social Security’s file-and-suspend option and compelled beneficiaries to empty inherited IRAs within 10 years, rather than over their lifetime. But both changes were grandfathered, meaning those already using the file-and-suspend strategy and those who already had inherited IRAs weren’t affected. Presumably, it would be a similar situation with existing Roth accounts. The upshot: If Congress limits the ability to take advantage of Roth accounts in future, it makes even more sense to convert to a Roth today, while the door is still open.
I’m amazed at how much interest this issue is getting. There must be a lot of us sitting with IRA’s and trying to figure out what to do. It is so hard to be willing to pay tax on a conversion to a Roth, but the siren call of a tax free Roth is singing to us.
I read today that the bill indicates any post tax $$$, or $$ transferred or contributed after 12/31/21 will not be eligible for transfer… hoping this means I can still convert my IRA (transferred from a 401K a few years ago).
The major loophole is the backdoor conversion that doesn’t pay a tax to convert. If you will be paying a tax to convert to a Roth you will “probably” be allowed.
The reason you don’t pay tax for the conversion step of a backdoor Roth is because you paid the tax on the first step – non-deductible traditional IRA contribution. Why do you think paying double taxes is an okay thing?