If the instructure bill that passed last night
Does anyone know if the infrastructure bill that passed last night contain the end to IRA conversions and an end to the Mega backdoor? Also if so is January 1of 2022 the date now these take effect? Thanks
Permalink Submitted by Alan - IRA critic on Sat, 2021-11-06 15:38
No, these provisions are not in the infrastructure bill, but they have been re introduced into the other (Build Back Better) bill which probably will not be voted on for another 2 weeks. The Senate could still further revise these provisions. As it stands they were to be effective 1/1/2022. Also, note that Roth conversions could still be done, but they would be entirely pre tax money.
If passed, and someone then converts more than their pre tax balance, my guess would be that any basis converted would be treated as an excess regular contribution to the Roth IRA, and would have to be removed as such. Therefore the former IRA basis would be lost from the TIRA and therefore other TIRA distributions will have a lower % of basis. Form 8606 would have to be re designed somewhat.
Permalink Submitted by Ken Fitzgerald on Sun, 2021-11-07 02:53
I am considering a large Roth conversion from my IRA before the end of this year, and was hoping to continue yearly smaller Roth conversions in the future. If my IRA is all pre-tax funded, (so taxable when withdrawn) am I OK with that plan? Next year will begin the required RMDs, and I am hoping to reduce my IRA balance to lower that RMD at same time due to the big conversion to Roth. I have already factored in the IRMAA hit I will take in 2023 if I do this. Thanks for your hlep. I always enjoy your knowledge and insight in these matters.
Permalink Submitted by Alan - IRA critic on Sun, 2021-11-07 18:00
Since this is the last year you could convert without having the added taxable income from RMDs, a large conversion to reflect that will increase the tax plus IRMAA surcharge for the conversion. Even though the IRMAA surcharge is two years away and you won’t know exactly how much it will be, you could estimate that and reflect it as a single marginal rate for the proposed conversion. Then the hard part is estimating what your marginal tax rate will be in the future if you do not convert. If you are married, try to factor in the single rate for an estimated number of years that the surviving spouse will be subject to the higher single status tax rates and also factor in estimated IRMAA surcharges in the future if you do not convert. You will then have a consolidated rate for the conversion to be compared with the estimated marginal rate in the future if you do not convert. If the current rate is lower (or in some cases equal to) the future estimated rate, you would want to convert the amount that will equalize those tax (and IRMAA charges) rates over the entire period. If you really want to fine tune the above, you might reduce the converted amount somewhat if you do NOT have good long term care insurance, because if you sustained long term care costs (extremely high in the northeast and just high elsewhere), the itemized deduction would defray the taxes, so you should pay those costs from TIRA accounts to be able to apply that deduction, instead of from Roth accounts where you have already paid the taxes. In short, not have LTC coverage would be a factor to reduce conversions somewhat. It is highly subjective how much you feel is your LTC exposure, or for a spouse if you are married. I do not know if there is any conversion calculator that allows you to factor in all these variables.