Interesting article on proposed IRA and Roth for high earners

[newellcr]

Sunset,


If I read it right, according to the finance buff article, the conversions on pre-tax money are permissible until 2031 without restriction...

[ducky911]

Quote:

Originally Posted by Mark1 You made me go back and look to see how much DW and I backdoor ROTH'ed while at Megacorp. We moved ~$375K into ROTHs via backdoor conversion from 2012 to 2016. Today the two accounts are worth $745K, so that equates to a $370K tax free gain. This law never made much sense to me, as we made too much to contribute to a ROTH in the traditional way. But hey, I'll take it.

Those are big numbers! didn't you pay a lot of taxes to enjoy this tax free gain in lieu of tax deferred gain.

State tax here in California is so high and I was always in a top bracket so I passed on this roth conversion.....Will be paying the price for it when I hit 72 or maybe 75.

[Mark1]

Quote:

Originally Posted by ducky911 Those are big numbers! didn't you pay a lot of taxes to enjoy this tax free gain in lieu of tax deferred gain. State tax here in California is so high and I was always in a top bracket so I passed on this roth conversion.....Will be paying the price for it when I hit 72 or maybe 75.

Yes, these are big numbers, but that is how it worked out. Some years DW was able to contribute $16,000 post-tax/year to her 401K. The tax was the same if we did the post tax contribution or went out and spent the money on a new car. Either way we were taxed on our wages.

[ExPatKiwi]

Quote:

Originally Posted by newellcr Sunset, If I read it right, according to the finance buff article, the conversions on pre-tax money are permissible until 2031 without restriction...

Yes, it looks like with income under $400k conversions will still be permitted to 2031. The big change is the elimination of all after-tax contributions to qualified plans like the 401k from 2022. Luckily this year I have already maxed out my after-tax 401k contributions and Mega backdoor it to my ROTH IRA.


If the bill passes I will have to change my investment plan IPS. Probably end up sending the ~$26k after-tax 401k contributions to my taxable brokerage account instead.

[Dtail]

Quote:

Originally Posted by pb4uski I don't have a problem with any of those proposals.... the whole IRA program was intended to allow middle income taxpayers to save for retirement with an incentive of tax savings. Given their very names, it should be obvious that the backdoors were not intended and should be closed and locked. I also don't have any problems with restrictions on IRAs above certain limits.

Agree.

[tulak]

Quote:

Originally Posted by ExPatKiwi If the bill passes I will have to change my investment plan IPS. Probably end up sending the ~$26k after-tax 401k contributions to my taxable brokerage account instead.

Same here.

The blog article I posted above is pretty good about what you should do before 2022 if this becomes law. The main takeaway I got was to make sure you don’t make any after-tax contributions in 2022, which probably means you have to stop contributions in late November since it usually takes a couple pay periods before the change goes into effect.

[newellcr]

Here is a clip from a Bloomberg article today, link below. I kinda feel like I'm stoking discontent, but that isn't where I'm going with this. I just find it interesting...

"More than $279 billion sits in mega-IRAs, individual retirement accounts with at least $5 million each, according to Congress’s nonpartisan Joint Committee on Taxation. Despite rules designed to limit IRA contributions by the wealthy, almost 29,000 Americans hold these giant accounts, and nearly 500 of them somehow managed to get $25 million or more into their IRAs."

https://www.bloomberg.com/news/artic...s?srnd=premium

[yhoomajor]

I see bit of "as long as they target people who make more than I do, is good with me" in this thread.

Sooner or later it will arrive at your door step as well. And here is one such nugget. Taxing ETFs:
https://www.cnbc.com/2021/09/16/demo...ded-funds.html


Snippet from the article:
Senate Finance Committee Chairman Ron Wyden, D-Ore., has floated a new levy on exchange-traded funds to help pay for the Democrats’ $3.5 trillion budget package.

Exchange-traded funds, or ETFs, are baskets of assets — such as stocks or bonds — and can be bought or sold throughout the day like stock. While everyday investors don’t directly own the shares, a fund manager may buy or sell the underlying assets to financial institutions.
Regular investors typically avoid taxes while owning the fund because financial institutions can swap the underlying assets for others, known as an “in-kind” trade, which doesn’t trigger capital gains.

Wyden has called for ending the tax break for these in-kind transactions, according to the proposal, which may affect all investors across the $6.8 trillion U.S. exchange-traded fund industry

[RetireeRobert]

Considering that federal government is spending "trillions", with more multi-trillion spending bills on the way, just how much tax do they think they will collect from all the punish the rich schemes? Someone above quoted $279 "billion" sitting in "mega-IRAs. Those are not going to generate taxes more than a mere fraction of only $1 trillion. I think "punish the rich" tax schemes are counter productive when all is said and done. My opinion.

[PatrickA5]

Quote:

Originally Posted by pb4uski I don't have a problem with any of those proposals.... the whole IRA program was intended to allow middle income taxpayers to save for retirement with an incentive of tax savings. Given their very names, it should be obvious that the backdoors were not intended and should be closed and locked. I also don't have any problems with restrictions on IRAs above certain limits.

Agreed.

[pb4uski]

Quote:

Originally Posted by RetireeRobert Considering that federal government is spending "trillions", with more multi-trillion spending bills on the way, just how much tax do they think they will collect from all the punish the rich schemes? Someone above quoted $279 "billion" sitting in "mega-IRAs. Those are not going to generate taxes more than a mere fraction of only $1 trillion. I think "punish the rich" tax schemes are counter productive when all is said and done. My opinion.

Your "punishing the rich" is my adjust the program back to what it was intended to be to begin with. My read is that there is no punishment proposed, but that they will not allow these mega programs to get bigger.

[mountainsoft]

I'll never make anywhere close to $400K so it's not something that applies to me. However, the backdoor option never made sense to me. Why lock the front door but leave the back door wide open? Seems like the same rules should apply to both. You either qualify for contributions or you don't.

I've also never understood why IRA's are limited to $7000 contributions (over 50) but 401K's are allowed to contribute $19500? The same limits should apply to both. Why should I have a lower limit just because my employer doesn't offer a 401K?

Too many separate rules and loop holes.

[RetireeRobert]

Quote:

Originally Posted by pb4uski Your "punishing the rich" is my adjust the program back to what it was intended to be to begin with. My read is that there is no punishment proposed, but that they will not allow these mega programs to get bigger.

Call them "adjusting the program back", or call them "punishing the rich", whatever one calls them, the only possible amount of tax revenue potentially generated is but a shadow fraction of the trillions in spending and spending proposals being pushed.

And I do believe these "adjustments back" will be counter productive to the country economically in the long run anyway.

[pb4uski]

Quote:

Originally Posted by RetireeRobert Call them "adjusting the program back", or call them "punishing the rich", whatever one calls them, the only possible amount of tax revenue potentially generated is but a shadow fraction of the trillions in spending and spending proposals being pushed. And I do believe these "adjustments back" will be counter productive to the country economically in the long run anyway.

Yes, but so what? What is your point? The proposals were not intended to generate trillions of dollars of revenue so you really don't have a point other than you don't like deficit spending... but that ship has sailed a long time ago.

On the last part, I think you are wrong... it won't make a rat's ass bit of difference.

[N02L84ER]

Now that the Secure Act was passed, when the mega Roth and IRA holders die the funds pass to the surviving spouse but after the spousal death the funds typically have to be distributed within 10 years. So, I don't see the need to limit the growth of the Roth or IRA, unless they are worried the surviving spouse will remarry someone younger, who will remarry someone younger, etc. Passed down wealth doesn't typically last more than 3 generations anyway and I certainly don't see remarriages making the funds last longer either.

[RetireeRobert]

Quote:

Originally Posted by pb4uski The proposals were not intended to generate trillions of dollars of revenue .........

Meaning the proposals are nothing more than "punish the rich" (my original point). Otherwise, why make them? They are not to generate revenue.

[tulak]

Quote:

Originally Posted by pb4uski Your "punishing the rich" is my adjust the program back to what it was intended to be to begin with. My read is that there is no punishment proposed, but that they will not allow these mega programs to get bigger.

I agree. This was meant as a way for normal wage earners to save money. Unfortunately it changed to something else. I’ve benefited, to a much lesser extent, and I’m ok if it’s gone. Saving in a taxable account works too.

[tulak]

Quote:

Originally Posted by RetireeRobert Meaning the proposals are nothing more than "punish the rich" (my original point). Otherwise, why make them? They are not to generate revenue.

Well, do you think it’s ok for someone to have tens of millions invested and never pay any taxes?

I don’t think this is punishing anyone. This is closing a loophole that should have never existed. Punishing them would be taking back some of their gains, which isn’t part of the proposal.

Personally, I think everyone should pitch in. But people with lots of money know how to be clever to keep more of their money.

[pb4uski]

Quote:

Originally Posted by tulak ... I don’t think this is punishing anyone. This is closing a loophole that should have never existed. Punishing them would be taking back some of their gains, which isn’t part of the proposal. ...

Spot on.

[Winemaker]

Quote:

Originally Posted by tulak Well, do you think it’s ok for someone to have tens of millions invested and never pay any taxes? I don’t think this is punishing anyone. This is closing a loophole that should have never existed. Punishing them would be taking back some of their gains, which isn’t part of the proposal. Personally, I think everyone should pitch in. But people with lots of money know how to be clever to keep more of their money.

Due to the SECURE Act, the gubmint will still get their money within 10 years of the owners death unless a spouse inherits. So what if it's grown to $10 million? or created by an clever omission?

There's a thread on here about "coping with change". When I started planning 40+ years ago, I used the rules "they" made. Now, because someone got their nose out of joint because of "income inequality" or "fairness", they want to change/punish those who followed the rules?