CONGRESS LOOKS TO ELIMINATE BACK-DOOR ROTH STRATEGIES

Sarah Brenner, JD
IRA Analyst

The House Ways and Means Committee has released a draft of proposed changes to retirement accounts, including adding income limits for conversions and eliminating the back-door Roth conversion strategy. These proposals are designed to raise revenue and are likely, at least in part, a response to recent headlines about large Roth IRAs held by billionaires. Unless otherwise noted, the proposals would be effective for 2022. Here is what this means for your retirement account.

Contribution Limits for Large IRAs. The proposal creates new rules for those with very large IRA and defined contribution retirement account balances. Specifically, it prohibits further contributions to a Roth or traditional IRA for a taxable year if the total value of an individual’s IRA and defined contribution retirement accounts generally exceed $10 million. The limit on contributions would only apply to single taxpayers (or taxpayers married filing separately) with taxable income over $400,000, and married taxpayers filing jointly with taxable income over $450,000.

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Q: I have a Roth IRA and suddenly I was unable to view and edit my beneficiaries. I was told by the custodian that it was because the account was moved from a previous bank when they were bought out. I contacted the current custodian and they told me to open another Roth IRA with them and just transfer the funds.

Do you see any issues with me doing this such as the 5-year rule or early withdrawals?

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Q: If your employer contributes to either a SEP IRA or a SIMPLE IRA, can you (the employee) also contribute to a Roth IRA?

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Q: I have an inherited IRA. I took a manual withdrawal from it in late August. I thought I had deleted my auto withdrawal on the custodian’s website. I just noticed today that another distribution was taken on 9/17. I have done nothing with the money in the core account that it was transferred to. Is there any way for me to reverse this error?

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In 2021, Roth conversions may be more critical and valuable than ever with new tax and budget proposals being considered. However, these conversions are now permanent, so accurate tax projections and knowledgeable guidance are essential, especially during year-end planning! Plus, recent tax laws created an unusual and little-known opportunity that ends this year for clients to gain mega tax deductions for their charitable gifts. Finally, the combination of the CARES and SECURE Acts created confusion about RMDs. Make sure you are providing the right advice and showing your clients how to maximize their tax savings with these timely year-end planning decisions.

The discussion will focus on:

• How to identify the clients who will benefit most from locking in 2021 Roth conversions.
• MEGA QCDs: This BIG tax planning move expires at year-end!
• 2021 RMD Confusion for Clients who are 72 this year.

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