Simple Question about Roth Conversions ?

[rkser]

- I am retired & do not make any contributions to any IRA.

- I had contributed some after tax contributions to IRA while working roughly 20 yrs back. These after tax contributions make around 2% of the total in IRA.

- Last few years I have been doing Roth Conversions & filing Form 8606 with my Taxes.

- Our AGI is less than $400k, my total IRA amounts to around $1.5 million.

- When they say, the Back Door Roth Conversions may be stopped are they referring to the kind of Roth Conversions I am doing ?

Thanks in advance to clear the confusion.

 

[Dash man]

- I am retired & do not make any contributions to any IRA.



- I had contributed some after tax contributions to IRA while working roughly 20 yrs back. These after tax contributions make around 2% of the total in IRA.



- Last few years I have been doing Roth Conversions & filing Form 8606 with my Taxes.



- Our AGI is less than $400k, my total IRA amounts to around $1.5 million.



- When they say, the Back Door Roth Conversions may be stopped are they referring to the kind of Roth Conversions I am doing ?



Thanks in advance to clear the confusion.

No, the backdoor Roth is done by contributing nondeductible amount to a traditional IRA, then immediately converting it to a Roth IRA. We did that for several years when we didn’t qualify for a deductible IRA or a Roth. It is a backdoor for those making too much to get a tax deduction or make a normal contribution to a Roth.

 

[rkser]

No, the backdoor Roth is done by contributing nondeductible amount to a traditional IRA, then immediately converting it to a Roth IRA. We did that for several years when we didn’t qualify for a deductible IRA or a Roth. It is a backdoor for those making too much to get a tax deduction or make a normal contribution to a Roth.

20 years back while working we had the same reasons for our after tax & non deductible contributions to IRA.
Then I understand the in future such after tax & non deductible IRA contributions may be stopped.

Thanks.

 

[SecondCor521]

At one point the new BBB Act did have a provision that all Roth conversions with a pre tax basis (i.e., OP's situation), would be prohibited. I am not sure whether or not that provision survived. I would check.

 

[rkser]

At one point the new BBB Act did have a provision that all Roth conversions with a pre tax basis (i.e., OP's situation), would be prohibited. I am not sure whether or not that provision survived. I would check.

This medley of words bothers me -

I am guessing the "Back Door Conversion" refers to immediate/recent after tax IRA contribution being converted to Roth.
Then the only difference is the time duration of the same after tax IRA contributions, one was made 20 or so years back as opposed to same contributions made in the present/future.

I hope they do not bar conversions of contributions like mine, as that will be double taxation & I think that is not their intent.

Thanks

 

[oldtimer]

Because it is not a law yet, specific details are not known with certainty. Even if it becomes law, most likely the IRS will need to release some clarification since tax laws are never 100% clear.


If I had to guess now, they could prevent tIRA post-tax money to transfer to a Roth IRA and only allow the pre-tax money to convert to Roth. The non-deductible contributions could only be withdrawn from the tIRA. OR maybe something else - it is only guessing now until it becomes a law.

 

[SecondCor521]

This medley of words bothers me -

I am guessing the "Back Door Conversion" refers to immediate/recent after tax IRA contribution being converted to Roth.
Then the only difference is the time duration of the same after tax IRA contributions, one was made 20 or so years back as opposed to same contributions made in the present/future.

I hope they do not bar conversions of contributions like mine, as that will be double taxation & I think that is not their intent.

Thanks

I didn't look at the provision very carefully, since it doesn't affect me personally.

I think their intention was to eliminate back door Roth contributions, and the way they wrote the provision was broad enough to include people like you. You became, in effect, collateral damage. Presumably there are not that many people like you, and thus there is not a large enough or loud enough outrage to change the law in progress.

I did take a moment to go check, and it does look like that provision is in the current version of the law. You can go search for HR5376 or here is a direct link to the bill:

https://www.congress.gov/bill/117th-congress/house-bill/5376/text

Then search in the bill for Section 138311, which is on about page 2271 of the PDF.

It sure looks like it applies to you, unfortunately.

Some have questioned whether one could just give up the tax-free aspect of that portion of the traditional IRA which is post-tax in exchange for being able to do the conversion. I think it's a clever idea, but my reading of the plain text of the provision would lead me to think that it wouldn't work.

But I am no expert on the law or on taxes, and I'm just SGOTI, and that's just my 2 cents. Consult your own qualified advisors, yadda yadda.

 

[Winemaker]

page 2271........................lol !

 

[rkser]

I hope they do not stop Roth Conversions altogether including of the Pre Tax IRA Contributions, they will just stop the incoming Tax revenue.

But what do I know...., they keep moving the Goal Post.

This goes on to show to not be over zealous in saving for the future (a boglehead), well, we were young & dumb then.

Sorry for my rant, thank you every body for your input which I appreciate very much.

 

[SecondCor521]

People whose entire traditional IRA is pre-tax would still be able to do Roth conversions and generate tax revenue.

Again, I think they were trying to prevent backdoor Roths and their rule is just overly broad. They probably didn't want the extra complexity of trying to kill the backdoor Roth but still allow people like OP to still do their thing. Which is too bad.

Many of us got caught in a similarly over-broad rule about Roth conversion recharacterizations - they eliminated a trick called the Roth conversion horserace, but that rule also eliminated the ability to dial in AGI, which was a sort of nice feature that I used to use. Oh well.

They also got rid of stretch IRAs, which impacted my family. But that's already been discussed here ad nauseum.

I am starting to think that even the tax-free forever nature of Roth IRAs won't last forever and somehow they'll claw back or add taxes on those as well. But that's completely speculative at this point.