Possible end to backdoor Roth IRA conversions 2022

Started by greenteapanacea
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greenteapanacea

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Hello all!

Just a PSA to do your backdoor Roth IRA conversions before the end of 2021. HR5376 - Build Back Better Act has a clause to remove backdoor Roth IRA conversion if passed as is. Please don't turn this thread into a political argument - if you don't like it, contact your local congressional representative.

Good luck investing!
 
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greenteapanacea said:
The "mega backdoor Roth IRA ($38000)" ban for the ultra rich won't take effect until the end of 2028. The normal backdoor Roth IRA ($6000) ban will take place in 2022. And no to RxPreceptor, you don't have to be ultra rich to invest $6000 yearly into a retirement account.
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If you make $200k+ household...most people would consider you rich.
 
greenteapanacea said:
The "mega backdoor Roth IRA ($38000)" ban for the ultra rich won't take effect until the end of 2028. The normal backdoor Roth IRA ($6000) ban will take place in 2022. And no to RxPreceptor, you don't have to be ultra rich to invest $6000 yearly into a retirement account.
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You are right, I didn't clarify the type of category. Given that "high-income taxpayer" threshold is around $400K annually, this may apply to many on this forum (maybe not pharmacists lol *cry*).

Here is a good summary of the most recent proposal.
 

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WVUPharm2007 said:
If you make $200k+ household...most people would consider you rich.
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I guess it is all relative. On one hand, your household income exceeds 90% US homes. On the other hand, in a state like California, $71,000 will go to taxes alone. Housing, transportation, child care, etc are not cheap. "Rich" I guess.
 
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TranslationalRPh said:
I guess it is all relative. On one hand, your household income exceeds 90% US homes. On the other hand, in a state like California, $71,000 will go to taxes alone. Housing, transportation, child care, etc are not cheap. "Rich" I guess.
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You might have low cash flow. That doesn’t mean you aren’t rich, it means your choices made you cash poor. That can include living in high cost states. And this isn’t supposed to be a knock on you, but know that most households get along with well under $200k annually, even in California. Median household incomes by family size and state are listed here, and $200k is well above the four person family median for all states: U.S. Trustee Program/Dept. of Justice

And honestly….your posts say you’ve had nannies, including night nannies, have duplexes, take amazing vacations, buy nice cars, go out to eat a lot, and save a lot still. Oh. And you stated you were in your thirties and could afford to retire now. That sounds rich to me.:shrug:
 
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alpha12 said:
Not sure. I make that and I don't feel rich especially now with "transitory" inflation.
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I don’t feel rich, but I know compared to others I am. And my family is making well under $200k per year. And yes, we max out our Roth opportunities. And 401k equivalent. And HSA. And try to do as much in the 529s as possible.
 
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radio frequency said:
I don’t feel rich, but I know compared to others I am. And my family is making well under $200k per year. And yes, we max out our Roth opportunities. And 401k equivalent And HSA. And try to do as much in the 529s as possible.
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Are 529s worth it? My understanding is that you can beat the returns by investing yourself.
 
alpha12 said:
Are 529s worth it? My understanding is that you can beat the returns by investing yourself.
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Depends on the plan, and if your kids end up going to college. Mine have done really well on returns though. It’s tax free gains if used for college, and that beats investing in a regular post-tax account.

Research them before choosing which 529; some have better returns and better costs than others, and some states give you benefits for choosing their specific plan. Mine are up 36% over the last year and 31.59% annually over the past three years. It appears my returns over the last year beat VTSAX, so that’s nice. I haven‘t compared my three year returns to VTSAX though.
 
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radio frequency said:
You might have low cash flow. That doesn’t mean you aren’t rich, it means your choices made you cash poor. That can include living in high cost states. And this isn’t supposed to be a knock on you, but know that most households get along with well under $200k annually, even in California. Median household incomes by family size and state are listed here, and $200k is well above the four person family median for all states: U.S. Trustee Program/Dept. of Justice

And honestly….your posts say you’ve had nannies, including night nannies, have duplexes, take amazing vacations, buy nice cars, go out to eat a lot, and save a lot still. Oh. And you stated you were in your thirties and could afford to retire now. That sounds rich to me.:shrug:
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We can agree to disagree. I am sure you can appreciate that the higher incomes are frequently correlated with high tax areas. Thus, the choice could very well be make less than <$200,000 in a cheaper area and pay less taxes or make +$200K but pay a good portion of it to taxes.

You can define rich however you like. I
generally go with a popular definition of having a great deal of money or assets. Because of the expenses I mentioned, a lot of people who make ~$200,000 are what Investopedia terms HENRYs: High Earners Not Rich Yet, because they don't have enough left over to accumulate any assets. This in no way invalidates someone making less, as I already acknowledge 90% of people make less. However, hopefully the discussion, at least to some, perhaps provides insights into why MANY in the +$200,000/year camp don't consider themselves "rich" yet.

Our personal wealth is really irrelevant IMO.
 
TranslationalRPh said:
We can agree to disagree. I am sure you can appreciate that the higher incomes are frequently correlated with high tax areas. Thus, the choice could very well be make less than <$200,000 in a cheaper area and pay less taxes or make +$200K but pay a good portion of it to taxes.

You can define rich however you like. I
generally go with a popular definition of having a great deal of money or assets. Because of the expenses I mentioned, a lot of people who make ~$200,000 are what Investopedia terms HENRYs: High Earners Not Rich Yet, because they don't have enough left over to accumulate any assets. This in no way invalidates someone making less, as I already acknowledge 90% of people make less. However, hopefully the discussion, at least to some, perhaps provides insights into why MANY in the +$200,000/year camp don't consider themselves "rich" yet.

Our personal wealth is really irrelevant IMO.
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It comes down to your standards of living. One can save a lot more if you plan your life in such a way that saving is possible, and actually execute those plans. And of course the obvious: hopefully nothing bad happens to you while trying to execute that plan. I’ve never had a household income anywhere near $200k, have been out of school for a few years now, and we’re definitely doing far better than average. Had my life gone just a bit more smoothly, we’d be doing very very well.

If you choose a locale that pays a lot but also costs a lot, you will potentially find it harder to save, but the impact to your net worth will likely be offset by housing appreciation. Hopefully those folks have a plan to retire somewhere cheaper, because you can’t eat your expensive house upon retirement. One could also just choose a less expensive location that also pays very well. This isn’t hard to do with pharmacy or medicine, though your mileage may vary in other careers.
 
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alpha12 said:
Are 529s worth it? My understanding is that you can beat the returns by investing yourself.
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Pick a 529 that lets you pick your own investments (unless you have a state taxation benefit). I use Utah’s (since California has no tax benefit), and I just dump the $$ into Vanguard funds.

For college savings, about 25% of the money allocated for that is in a 529 for me…the rest are scattered in various brokerage accounts.

The main benefit I see, aside from the obvious tax free educational use, is that the 529 is not counted like a regular asset for the beneficiary, which could disadvantage them in financial aid considerations.
 
WVUPharm2007 said:
You rich.

Deal with it.
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Our wealth is irrelevant for many reasons, as we haven't disclosed our income/net worth nor how we classify our wealth. Conspicuous consumption is generally more a product of debt than true wealth anyway. We could be leveraged up to our eyeballs for all that it matters. We could make less than many and just have no debt. We could make less and just have generous family. It's impossible to truly know what is going on based on some random, noncontextual statements. More importantly, it has nothing to do with the question.

The question was whether $200,000 household income is "rich." While you have a black and white answer, for many people the answer is it depends. Your disagreement doesn't nullify their world view. Deal with it.
 
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greenteapanacea said:
The "mega backdoor Roth IRA ($38000)" ban for the ultra rich won't take effect until the end of 2028. The normal backdoor Roth IRA ($6000) ban will take place in 2022. And no to RxPreceptor, you don't have to be ultra rich to invest $6000 yearly into a retirement account.
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Was this changed recently? The last I heard, both backdoor Roth and mega backdoor Roth will be eliminated in 2022.

Also remember that the income phaseout to do a direct Roth IRA (not backdoor) contribution starts at $129k single/$204k married for 2022, and this does not include $20,500 pre-tax 401k, HSA, FSA, health insurance, etc. So you could gross up to $153k and still be allowed to contribute to a Roth IRA.
 
Does being in the top 1% of wage earners make you rich?

I suspect that only someone in or near that income level would answer “no”. I wouldn’t go so far as to say one group is right and the other wrong, but it certainly reads as out of touch.

I guess you can make a good case that no wage earner is truly rich if they still rely on their wages and perhaps you aren’t rich until you are past that point.
 
greenteapanacea said:
The "mega backdoor Roth IRA ($38000)" ban for the ultra rich won't take effect until the end of 2028. The normal backdoor Roth IRA ($6000) ban will take place in 2022. And no to RxPreceptor, you don't have to be ultra rich to invest $6000 yearly into a retirement account.
Click to expand...

Ugh what are the income limits for 2022? I'm currently single and I make about 140k? Am I right on the border? I should really get married.
 
TranslationalRPh said:
Our wealth is irrelevant for many reasons, as we haven't disclosed our income/net worth nor how we classify our wealth. Conspicuous consumption is generally more a product of debt than true wealth anyway. We could be leveraged up to our eyeballs for all that it matters. We could make less than many and just have no debt. We could make less and just have generous family. It's impossible to truly know what is going on based on some random, noncontextual statements. More importantly, it has nothing to do with the question.

The question was whether $200,000 household income is "rich." While you have a black and white answer, for many people the answer is it depends. Your disagreement doesn't nullify their world view. Deal with it.
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You wouldn't be bitching about this unless you made over the IRS limit...which is about $200,000. That's just the minimum your household income must be.

I mean...come on.

You're out here trying to say that you don't consider $130,000/year AFTER TAXES to be rich? You can't live off of over $10,000 a month? Literally anywhere in this country? Who the hell is your nanny? Martha Stewart? Do you drive a Bugatti? Do you have 12 kids?

You're not convincing anyone on here that you aren't rich.

I only make $159k and I feel rich as hell. I do whatever I want and never seem to be able to spend all of my money. I shove like $45k into the stock market every year out of sheer nothing else to do with it.
 
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owlegrad said:
Does being in the top 1% of wage earners make you rich?

I suspect that only someone in or near that income level would answer “no”. I wouldn’t go so far as to say one group is right and the other wrong, but it certainly reads as out of touch.

I guess you can make a good case that no wage earner is truly rich if they still rely on their wages and perhaps you aren’t rich until you are past that point.
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Rich = you can live in excess in the moment

Wealthy = you own so much capital that it is enough to but your way out of wage slavery in perpetuity.

I aim to eventually be wealthy.
 
WVUPharm2007 said:
You're not convincing anyone on here that you aren't rich.
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I am not trying to convince anyone about anything regarding my wealth. I maintain that it is irrelevant.
WVUPharm2007 said:
You wouldn't be bitching about this unless you made over the IRS limit...which is about $200,000.
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I also never once complained about the proposed changes to the IRS rule.

I don't know why you seem so obsessed with what I may or may not have. Ad hominem attacks don't strengthen your argument. Good luck to you though.
 
TranslationalRPh said:
I am not trying to convince anyone about anything regarding my wealth. I maintain that it is irrelevant.

I also never once complained about the proposed changes to the IRS rule.

I don't know why you seem so obsessed with what I may or may not have. Ad hominem attacks don't strengthen your argument. Good luck to you though.
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I've decided that you make like $220k household. Just enough to not get that Roth. It must make you furious.
 
Dreamer716 said:
Ugh what are the income limits for 2022? I'm currently single and I make about 140k? Am I right on the border? I should really get married.
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There are limits to the amount you can contribute directly to Roth IRA above annual income of $125k if I remember correctly. That's why if you earn over $125k, it's smarter to first contribute post-tax $6000 to a Traditional IRA, then transfer that $6000 from the Traditional to a Roth IRA.

Also, I didn't intend for this thread to devolve into an argument about what "rich means", so please excuse that lol.
 
confettiflyer said:
I just want my SALT deduction back and that will be icing on my giant, fat, government cake.
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Most people do well even without SALT deduction. When I compared total tax liability under trump vs. Obama. Trump made you pay less tax overall. Isn't that more important than SALT deduction?
 
Momus said:
Most people do well even without SALT deduction. When I compared total tax liability under trump vs. Obama. Trump made you pay less tax overall. Isn't that more important than SALT deduction?
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No. The salt deduction put more dollars in local and state governments. Blue states already pay more in taxes tha red states. The salt cap was just a big f you by trump to states that didn't vote for him.
 
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aqb said:
Wait, my wife and I make about 210-220k combined. No more Roth contribution?

Ps I don’t feel rich at all with 200k student loans. Still eating ramen noodles every week!
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Just max out your 401k. That'll lower your adjusted gross. Boom, you're eligible.

And, yes, like everyone else in this thread, you are rich.
 
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owlegrad said:
Does being in the top 1% of wage earners make you rich?

I suspect that only someone in or near that income level would answer “no”. I wouldn’t go so far as to say one group is right and the other wrong, but it certainly reads as out of touch.

I guess you can make a good case that no wage earner is truly rich if they still rely on their wages and perhaps you aren’t rich until you are past that point.
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There is flip side to that. You can be asset rich and cash poor. I am a chicago bears fan and the mccaskey family is a good example of that. I think to be truly rich, you need a good mix of assetts and cash.
 
WVUPharm2007 said:
Just max out your 401k. That'll lower your adjusted gross. Boom, you're eligible.

And, yes, like everyone else in this thread, you are rich.
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I think at 200k you can make an argument either way. I would say that is upper middle class than rich. That's why 400k was the number biden defined as rich.
 
When you say do backdoor Roth before 2021, you mean it for the year 2021 and not 2022, correct?

Already did one for 2021 at the year start..
 
alpha12 said:
Are 529s worth it? My understanding is that you can beat the returns by investing yourself.
Click to expand...

Yes, go with Fidelity. I just chose a total stock market index fund. The first 2k is deductible in my state. Better than nothing.

@owlegrad remember when you thought I was paranoid about the government coming after our retirement accounts a couple months ago? This is what I was talking about. I wouldn't be surprised if 401k or HSA were next in a few years.
 
mentos said:
@owlegrad remember when you thought I was paranoid about the government coming after our retirement accounts a couple months ago? This is what I was talking about. I wouldn't be surprised if 401k or HSA were next in a few years.
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That’s not exactly how I remember it. I recall you being hyperbolic about there being no point in saving because the government will just reward spending, which I maintain is wildly overstating it. Or I could be thinking of a different conversation.
 
StockPharmD2020 said:
LoL 220k for a married couple is NOT rich. Maybe in West Va....
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LOL. Compared to the average taxpayer in every state, it’s wealthy. I think the problem of feeling not wealthy is simply one of comparing yourself to others making (or perhaps just spending in showy ways) more than your own household.
 
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radio frequency said:
LOL. Compared to the average taxpayer in every state, it’s wealthy. I think the problem of feeling not wealthy is simply one of comparing yourself to others making (or perhaps just spending in showy ways) more than your own household.
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If there was no debt and not 8 years of school then yea 110k per person Is a lot more money.

220k is upper middle class. Not rich. Not wealthy.
 
220k is good depending on what part of the country you live in and how many kids you have.

My household income is ~150 to 160k. We feel fine because we're DINK with a paid off house, no student loans
 
StockPharmD2020 said:
If there was no debt and not 8 years of school then yea 110k per person Is a lot more money.

220k is upper middle class. Not rich. Not wealthy.
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You can retire debt quickly on $220k if you are willing to make choices that others may not be willing to make. You actually have the option to become not just cash flow rich, but truly rich on $220k per year. I make less as a household unit than others I work with, but I have a suspicion my net worth may be higher than theirs. It’s all about spending patterns.

As an aside, I met somebody who grew up absolutely poor in a different area of the world. Like they owned just two pairs of pants poor. They said they didn’t ever feel poor though because everyone around them that they met was in the same boat. I was surprised, but it makes sense. What you see around you can change your viewpoints and your perspective. Our culture makes us feel poor or less well off than we are at times, but it isn’t always objectively true.
 
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radio frequency said:
You can retire debt quickly on $220k if you are willing to make choices that others may not be willing to make. You actually have the option to become not just cash flow rich, but truly rich on $220k per year. I make less as a household unit that others I work with, but I have a suspicion my net worth may be higher than theirs. It’s all about spending patterns.

As an aside, I met somebody who grew up absolutely poor in a different area of the world. Like they owned just two pairs of pants poor. They said they didn’t ever feel poor though because everyone around them that they met was in the same boat. I was surprised, but it makes sense. What you see around you can change your viewpoints and your perspective. Our culture makes us feel poor or less well off than we are at times, but it isn’t always objectively true.
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"Comparison is the thief of joy" rings true. Compared to my close friends in school who are now pulling in well over 200k to 250k as director level in pharma, I am arguably the least successful salary wise as a lowly staff RPh. On the other land, I do live in a lower cost of living area, am frugal in nature, and love to invest. As you mentioned, it's not about how much you make but what you do with the income.
 
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confettiflyer said:
California subsides the other states, so I just want my money back.
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If your SALT are lower, your overall tax burden would decrease. There wouldn't be such a premium tax cost for living in coastal areas. Would that at least somewhat offset the subsidization from these states' increased l overall contributions to federal taxes? I guess I was looking at it from an individual perspective: lower SALT accrues directly to your bottom line. No need to deduct what is not taken to begin with.
 
greenteapanacea said:
Hello all!

Just a PSA to do your backdoor Roth IRA conversions before the end of 2021. HR5376 - Build Back Better Act has a clause to remove backdoor Roth IRA conversion if passed as is. Please don't turn this thread into a political argument - if you don't like it, contact your local congressional representative.

Good luck investing!
Click to expand...

I always do backdoor for the previous year in the spring. So I contributed to 2020 this year. Can I also do backdoor for 2021 this year? My taxes are going to be a pain next year.

This means we can't contribute anymore to our Roth's for the rest of our lives? Mine is chump change compared to Peter Thiel's.
 
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mentos said:
I always do backdoor for the previous year in the spring. So I contributed to 2020 this year. Can I also do backdoor for 2021 this year? My taxes are going to be a pain next year.

This means we can't contribute anymore to our Roth's for the rest of our lives? Mine is chump change compared to Peter Thiel's.
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I am not a tax advisor, but I have definitely contributed to two years via Roth during the same year as you described without any issues.

It does seem like the proposal is to get rid of the backdoor Roth altogether.

If you don't like this rule, you can certainly write your congressmen before it becomes law. You may also consider writing Manchin/Senema, given that they have successfully put limits (fiscal and others) on this legislation.

Lastly, there's still the Roth 401K, assuming that you have access to one, the traditional IRA (just not as tax advantage), and several other investment vehicles, some of which can limit or avoid taxes altogether. It may be worth meeting with a tax advisor.

Regarding Peter Thiel, that's a really special case. Who, but he, has like $5 billion to begin with, let alone in a Roth IRA. It appears under the new proposed law, he would be required to take dispersements.
 
TranslationalRPh said:
I am not a tax advisor, but I have definitely contributed to two years via Roth during the same year as you described without any issues.

It does seem like the proposal is to get rid of the backdoor Roth altogether.

If you don't like this rule, you can certainly write your congressmen before it becomes law. You may also consider writing Manchin/Senema, given that they have successfully put limits (fiscal and others) on this legislation.

Lastly, there's still the Roth 401K, assuming that you have access to one, the traditional IRA (just not as tax advantage), and several other investment vehicles, some of which can limit or avoid taxes altogether. It may be worth meeting with a tax advisor.

Regarding Peter Thiel, that's a really special case. Who, but he, has like $5 billion to begin with, let alone in a Roth IRA. It appears under the new proposed law, he would be required to take dispersements.
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lol. Write your congressman. Unless you're a coal baron or from West By God, Manchin ain't gonna pay you no mind.
 
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