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Old 09-17-2021, 08:11 AM   #41
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I am kind of confused and not sure it matters to too many people, but. The articles talk about earnings limits for individuals, head of household, and couples. Are the rules changing for combined "Individual" accounts or combined "Individual accounts"? Meaning spouses have a $10/20M limit combined or each. It also sounds like the $10/20M limits only apply ~if you have income over the series of $400k thresholds. That would be an amazingly hard needle to thread...

How's that for an ER nerd contemplating the esoteric....
Here's a much clearer description (albeit somewhat tedious) of the proposed changes from Kitces. link
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Old 09-17-2021, 08:23 AM   #42
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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?
The rules will be changed to align them with the original intent of the program and address unintended consequences of some people using the rules for a benefit that wasn't intended. There is no punishment... just no continued benefit once the account balance eclipses a certain amount... though I can see that some who might be impacted might view the curtailment of a benefit as punishment... but suck it up buttercup.

Stop whining and start "wine"ing.
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Old 09-17-2021, 08:41 AM   #43
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IMO, which doesn't amount to a hill of beans, is that the real "loophole" that exists is not the backdoor conversions, but is twofold. 1) the difference in allowed contributions between 401Ks and IRAs; and 2) the that Roth 401Ks have RMDs and Roth IRAs don't. Possibly a third loophole is that the 401K and IRAs are protected from creditors differently.

IMO both were "intended" to be personal retirement accounts that supplement other savings and pensions. and should be treated equally. The only difference is that companies can contribute additional monies into the 401k, a totally voluntary contribution from the company's perspective. More and more are opting to not contribute matching dollars.

I would attack the root problem, not the consequences of different rules for the different retirement account programs.
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Old 09-17-2021, 11:37 AM   #44
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I am wondering about the ban on conversion of after-tax money from tIRAs to Roth IRAs starting in 2022. I have an IRA that has about 8% after-tax money and I've been slowly converting it since I retired 5 years ago. (This is an old account that had both after-tax and pre-tax money in it way before Roth IRAs and conversions were invented.) The current rules are that the funds have to be convered pro-rata, so 8% of every conversion is tax-free.

I am curious about whether I would be prohibited from converting any of these funds in the future, or if the pro-rata rule just goes away and all conversions come from the pre-tax money. I haven't gone to find the actual text of the bill, and the summaries I've read don't cover this case, so if anyone has seen something that's more detailed than "no more back-door Roth conversions", I would appreciate a link to the info.
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Old 09-17-2021, 11:43 AM   #45
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Shouldn't the government be encouraging the wealthy to convert?

Presumably they'd be doing so in some of the highest personal tax brackets.

As opposed to cheapskates like myself who won't be exceeding the 12% bracket by gradually converting traditional IRA accounts to Roth.
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Old 09-17-2021, 11:49 AM   #46
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Shouldn't the government be encouraging the wealthy to convert?

Presumably they'd be doing so in some of the highest personal tax brackets.

As opposed to cheapskates like myself who won't be exceeding the 12% bracket by gradually converting traditional IRA accounts to Roth.
Yes, good thinking. The government tax policy should "encourage", and not "punish".
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Old 09-17-2021, 01:03 PM   #47
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Tax-free growth for life would seem to be encouraging enough, especially if you or your heirs would pay higher tax rates on that money if it is withdrawn later.
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Old 09-17-2021, 02:42 PM   #48
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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 Congressís 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


There are others ways beside personal contributions to obtain high IRA balances.

When leaving an Employee Owned company (ESOP) you can convert your balance to IRA. The annual corporate ESOP contributions can amount of 25% of payroll.
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Old 09-17-2021, 03:37 PM   #49
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Here's a much clearer description (albeit somewhat tedious) of the proposed changes from Kitces. link
DrBrisket,

Thanks for the link. It was very helpful and very nicely laid out. Interestingly, for the RMD for $10M section, none of the examples use married people. The text does repeatedly says 'individual' so I, for now (so I can sleep ), will interpret that each spouse has $10M of headspace...

Kind Regards,
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Old 09-17-2021, 03:47 PM   #50
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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.
ExPatKiwi,

Take a look at the link DrBrisket posted. I am pretty sure it says disregard the $400k limits thru 2031 on pre-tax money. You can convert after tax money thru the end of this year. Take a look at the 'future prohibitions on conversions' section and the 'Nerd Note'. Do those pre-tax Roth conversions at will thru 2031...

Kind Regards,
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Old 09-19-2021, 05:00 AM   #51
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The new proposal may actually make large Roth conversions impossible, as the conversion amount is not backed out of the Adjusted Taxable Income Amount, and would push you over the income limit amount.
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Old 09-19-2021, 05:06 AM   #52
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The rules will be changed to align them with the original intent of the program and address unintended consequences of some people using the rules for a benefit that wasn't intended. There is no punishment... just no continued benefit once the account balance eclipses a certain amount... though I can see that some who might be impacted might view the curtailment of a benefit as punishment... but suck it up buttercup.

Stop whining and start "wine"ing.
So it took 40 years to to correct an unintended benefit? I don't think so.

Just a lot of jealousy out there. But you are missing my point. The new proposal stops conversions if your income for married folks is $450,000 in 10 years, 2032. So they will still have the conversion tax money for the next 10 years. What would inflation do to a the 2021 $200,000 income of a married couple in that period? It doesn't affect me as I have no earned income, so nothing for me to "suck up".

Secondly, the gubmint changed the rules with the SECURE act, so they're getting the money anyway whether your retirement account is $400,000 or $400,000,000. So why put limits on the accounts?
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Old 09-19-2021, 05:24 AM   #53
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So it took 40 years to to correct an unintended benefit? I don't think so.

Just a lot of jealousy out there. ...
Yes, it took 40 years to correct an unintended benefit. Actually, the unintended benefit has been apparent for some time but the political gears of government often turn slowly.

IMO, if one thinks it is jealously then they are a little too full of themselves.
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Old 09-19-2021, 05:42 AM   #54
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Yes, it took 40 years to correct an unintended benefit. Actually, the unintended benefit has been apparent for some time but the political gears of government often turn slowly.

IMO, if one thinks it is jealously then they are a little too full of themselves.
I'll give you the fact that it was an unintended benefit, and the Secure Act fixed that.

But this new proposal, is coming 2 years after SECURE'S passage. I realize it is not law just yet, but it will be punishing to a couple in 10 years that are making $200,000 now. Their salaries will be much higher, hopefully, their returns will stay historical, but will not be able to convert anything if they have a $450,000 adjusted taxable income.

And why put an upper limit on the size of thes accounts? They have to be spent in 10 years anyway.
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Old 09-19-2021, 10:50 AM   #55
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...

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?

.....
+1
That seems so unfair and simple to fix.

I was caught by that, due to employer not having a 401K. Also caught by when the employer had a 401K, but it was no matching, and not really good choices. Still contributed as could put in much more than in an IRA.

It affects workers whose employer doesn't have a 401K or has a lousy (expensive) 401K.
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Old 09-19-2021, 10:55 AM   #56
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+1
That seems so unfair and simple to fix.

I was caught by that, due to employer not having a 401K. Also caught by when the employer had a 401K, but it was no matching, and not really good choices. Still contributed as could put in much more than in an IRA.

It affects workers whose employer doesn't have a 401K or has a lousy (expensive) 401K.

+2 Very unfair dissimilar treatment of contribution limits.
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Old 09-19-2021, 12:07 PM   #57
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Am I correct in my interpretation that there is no impact on ROTH conversions from pre-tax accounts? They just proposing restricting conversions of after tax amounts(in addition to the other items)?
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Old 09-19-2021, 12:35 PM   #58
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I'll be very surprised if this bill becomes law. I'm okay with it if it does, but I just don't see enough solidarity among Democrats to make it past the finish line.
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Old 09-19-2021, 01:53 PM   #59
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....And why put an upper limit on the size of thes accounts? ...
Because it was never intended to allow people to defer income taxes on tens of millions. I'm guessing that at the time it was passed if someone contributed the max for a 35 year career and it grew at 7 or 8% that it would only have been a million or so.

The later came 401ks and higher annual contribution and then people got he bright idea to put start-up stock in it and ended up with many millions in IRAs.

I'll concede that perhaps they didn't give adequate consideration to how big these IRAs would become.
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Old 09-19-2021, 02:18 PM   #60
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^^^ But it still will be taxed within 10 years of the death of the owner and/or spouse. Uncle Sam still gets his money.
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