Anonymous wrote:

Anonymous wrote:JOE MANCHIN WILL SAVE US

Oh no, Manchin cut a deal

They are closing the carried interest loophole. I don't think roths are touched at all, and they shouldn't be.

Anonymous wrote:JOE MANCHIN WILL SAVE US

Oh no, Manchin cut a deal

The person who kept trying to tell me that a backdoor Roth is not post-tax is wrong. I'm a tax attorney who has been audited on backdoor Roths with no adjustment. I know what they are and how to do them. Backdoors are post-tax traditional IRAs (or 401(k) contributions, if your plan allows) that you then convert to Roth. People have to do it that (agreed--dumb and confusing) way because they're over the absurdly low income limits. Otherwise they'd just use the front door.

Normal Roth conversions are where you take pre-tax money and convert it to Roth, paying tax in the year of the conversion. That will still be allowed for 10 years, and allowed indefinitely for people making under 400K. People do these when they have savings in pre-tax IRAs followed by years of lower tax brackets (maybe you worked before entering law school or medical school and do the conversion while you're in school, maybe you retire early...) The 400K isn't indexed to inflation for the next ~10 years though, so have fun with that if you think you're not "rich" enough to be targeted now, with this inflation you may be soon. The people newly paying the Obamacare net investment income tax (ahem), which was supposed to target the wealthy a decade ago, who are making 250K total HHI in 2021 can tell you how that feels.

Pretax traditional IRAs are the thing that are mathematically the same as a Roth IRA, it's just a gamble on your taxes being lower in retirement. The choice between pre-tax traditional and Roth is solely a gamble on tax rates now vs. later (as well as RMDs, changes in law, etc, but the tax rate differential is the big one).

Post-tax traditional IRAs isn't just a bet on tax rate differentials and do not make sense for many people. Distributions are ordinary income. They will be subject to RMDs. In a taxable brokerage, you control the timing of the gain recognition and most assets are taxed at the lower CG rate, even the dividends it throws off mostly get a preferential rate. Almost everyone is better off putting the money in a taxable brokerage account into an ETF or stock, and holding the assets until you die and hand it to your kids tax-free. I honestly don't know who they make sense for, but maybe someone can tell me. If the backdoor Roth goes away, my money will still be going into a taxable brokerage, not a post-tax traditional IRA, and I'm childless, FWIW.

Anonymous wrote:Immediate PP, I think the key point to make is that, if this passes:

1) Conversions of post-tax IRA contributions will be no longer allowed as of jan 1 2022. This is generally known as back door Roth.

2) Conversions of pre-tax IRA contributions will be allowed for the next 10 years (or whatever that specific much later date is), then be disallowed

While Tradtional IRAs obviously can accept post-tax contributions in additional to pre-tax, this wasn't a popular thing to do unless the intent was to use the post tax for aa backdoor Roth. There may be benefits to contributing post-tax to a Trad Roth ira, but I'm not familiar with what they are and why people would do it.

Agree with your points.

Your (2) above will likely benefit retirees or near-retirees who were planning on such a conversion strategy. Most employed folks would likely just contribute to Roth 401K directly.

I don't see the point of a post-tax Traditional IRA either. Mathematically it's the same as paying taxes now and letting your money grow tax free. I think it's a gamble on your taxes being lower in retirement vs. now. By a lot.

Immediate PP, I think the key point to make is that, if this passes:

1) Conversions of post-tax IRA contributions will be no longer allowed as of jan 1 2022. This is generally known as back door Roth.

2) Conversions of pre-tax IRA contributions will be allowed for the next 10 years (or whatever that specific much later date is), then be disallowed

While Tradtional IRAs obviously can accept post-tax contributions in additional to pre-tax, this wasn't a popular thing to do unless the intent was to use the post tax for aa backdoor Roth. There may be benefits to contributing post-tax to a Trad Roth ira, but I'm not familiar with what they are and why people would do it.

^^ Ignore the last sentence "If someone is doing this in the same year .."

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

I think that later date is for Roth conversions not back door roths

Aren't these the same thing (just two names for the same action)?

No they are not. The one that is delayed by 10 years is for conversions of traditional pretax IRA amounts to Roth for people >400/450K (which is not indexed to inflation until then…). If you are under 400/450K you will still be able to convert pretax IRA to Roth (this is a taxable event, one people tend to do in years where their brackets are lower). The one that is immediate/2022 is banning all back door and mega back door Roths, which is something people who earn >100K ish start being phased out of doing. The back doors use POST-tax money. This is banned for all income levels. It’s very confusing, which is what Congress is probably counting on. I hope this helps.

But... isn't "conversions of traditional pretax IRA amounts" a backdoor roth?

No. Backdoors use POST-tax money.

No, they do not. You contribute to a traditional IRA. That is pretax. You convert it and pay tax on the conversion (hopefully you kept it a small or 0 gain). Then it’s Roth money.

NP. I'm not sure if you are the same poster who keeps correcting the other poster(s). You are WRONG.

A traditional IRA contribution can be either pre-tax or post-tax.

- If the contributor does not have a workplace 401K and the contributor may elect to claim a tax deduction based on that contribution. If that IRA is converted to an Roth, it's just plain Roth conversion. This conversion would typically happen several years after the contribution (If the intent was to convert to Roth in the same year, why bother claiming a tax deduction in the first place only to give it back when you convert?)

If the contributor has a workplace 401K and contributes to a Traditional IRA, it would be post-tax contribution. If that person's income is above the Roth contribution limits, he/she could still convert that money into a Roth. That is a BACKDOOR ROTH conversion. If their income was within Roth contribution limits, they would just contribute to a Roth directly (hence the "backdoor").

If someone is doing this in the same year

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

I think that later date is for Roth conversions not back door roths

Aren't these the same thing (just two names for the same action)?

No they are not. The one that is delayed by 10 years is for conversions of traditional pretax IRA amounts to Roth for people >400/450K (which is not indexed to inflation until then…). If you are under 400/450K you will still be able to convert pretax IRA to Roth (this is a taxable event, one people tend to do in years where their brackets are lower). The one that is immediate/2022 is banning all back door and mega back door Roths, which is something people who earn >100K ish start being phased out of doing. The back doors use POST-tax money. This is banned for all income levels. It’s very confusing, which is what Congress is probably counting on. I hope this helps.

But... isn't "conversions of traditional pretax IRA amounts" a backdoor roth?

No. Backdoors use POST-tax money.

No, they do not. You contribute to a traditional IRA. That is pretax. You convert it and pay tax on the conversion (hopefully you kept it a small or 0 gain). Then it’s Roth money.