Possible end to backdoor Roth IRA conversions 2022

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I don't understand why any politicians would go for this since they all do backdoor Roth too?
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TranslationalRPh said:
Honestly, it's a tax loophole that they are closing that only affects higher income constituents. I would suspect they would argue that mainstream America doesn't need it.
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They should close it for the super rich then. Leave the middle class alone.
 
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mentos said:
www.usatoday.com

Sen. Joe Manchin says he won't support Biden's Build Back Better social spending bill

The West Virginia Democrat said Sunday he has "tried everything humanly possible" but cannot support the bill. The White House issued a stern reply.
www.usatoday.com

Build Back Better dead? Backdoor Roths still alive?
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Yes, it is dead for now. Doubt there would ever be the support to enact this next year after Q1_2022. Too close to mid-terms. They never met his terms, and there's too much inflation and too much debt. I believe he's the only current Democratic Senator who represents a state that Trump handily won. There's no way he was going to let this past in the current form.
 
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Additionally once 529 is passed to your kids, they may not use it and then they can give to their kids.

One of the very fee things that can cross generations.
Roth IRA used to be one but law changed on 2021
 
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owlegrad said:
Would it be poor form for me to say I told you so?

No, I am kidding. Sort of. ;)
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They will come after our Roths again later on.
 
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mentos said:
They will come after our Roths again later on.
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Omg, stop. You will be fine. Just don’t spend like you are dumb, and keep saving.

Seeing other rich people (who may even have more than me and/or make more than me) who think they are poor is fascinating.
 
radio frequency said:
Omg, stop. You will be fine. Just don’t spend like you are dumb, and keep saving.

Seeing other rich people (who may even have more than me and/or make more than me) who think they are poor is fascinating.
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No one doing a Backdoor Roth is poor, but that doesnt mean it needs to be taken away.

I think my MAGI is below the Roth threshold, but I still backdoor every year incase capital gains or overtime kick me over. I'd like to have the option open so I don't accidentally illegally contribute to a Roth if my income spikes partway through the year.
 
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footfairy said:
No one doing a Backdoor Roth is poor, but that doesnt mean it needs to be taken away.

I think my MAGI is below the Roth threshold, but I still backdoor every year incase capital gains or overtime kick me over. I'd like to have the option open so I don't accidentally illegally contribute to a Roth if my income spikes partway through the year.
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Well, you don’t need to worry, because it sounds like the backdoor Roth isn‘t being taken away. This constant “they‘re going to take our money!” thing in here is just tiresome though.
 
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radio frequency said:
Well, you don’t need to worry, because it sounds like the backdoor Roth isn‘t being taken away. This constant “they‘re going to take our money!” thing in here is just tiresome though.
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What’s fascinating to me is how someone like say Buffet will say that the tax code favors investors rather than wage earners but if you listen to this group you would think that our money is being stolen to give to lazy poor people.

I mean I have no opinion on what will happen in the future, maybe Roth will be taken away or maybe it won’t, but to act like eliminating Roth will be the end of investing and why even save/invest money at all in that case is just silly. There are still multiple investing options and all of them have cheaper taxes than earning a wage so, you know, maybe keep it in perspective.
 
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owlegrad said:
What’s fascinating to me is how someone like say Buffet will say that the tax code favors investors rather than wage earners but if you listen to this group you would think that our money is being stolen to give to lazy poor people.

I mean I have no opinion on what will happen in the future, maybe Roth will be taken away or maybe it won’t, but to act like eliminating Roth will be the end of investing and why even save/invest money at all in that case is just silly. There are still multiple investing options and all of them have cheaper taxes than earning a wage so, you know, maybe keep it in perspective.
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It's kind of mind blowing when you think about it. You can basically buy the rights to the fruits of the labor of other people. I'm going to eventually have enough capital that I can sit on my ass doing nothing while other people support my lazy ass. It takes no skill. Or effort, really. You literally just send Vanguard money and tell them to put it in an index. And that gets taxed at a lower rate than when you actually do work. What a stupid economic system, lol.
 
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footfairy said:
No one doing a Backdoor Roth is poor, but that doesnt mean it needs to be taken away.
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This.

Just because we're not poor, doesn't make it right.
 
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mentos said:
This.

Just because we're not poor, doesn't make it right.
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👍 Also, just because you are not poor doesn't make you "rich". However, even if you are "rich" doesn't mean you have to be for excess taxation. That presupposes that the government is a better capital allocator than you: not necessarily true and often false.
 
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owlegrad said:
Buffet will say that the tax code favors investors rather than wage earners but if you listen to this group you would think that our money is being stolen to give to lazy poor people.
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I guess I don't understand your position. Most people on here are not yet a part of the investing class that Buffet is talking about but rather the working class that pay plenty in taxes as a portion of earned realized income.
 
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TranslationalRPh said:
I guess I don't understand your position. Most people on here are not yet a part of the investing class that Buffet is talking about but rather the working class that pay plenty in taxes as a portion of earned realized income.
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Yep, the main reason they want to take away the Roth is because of whales like Peter Thiel who made 5 billion tax free. Those are the real rich people. We are merely middle class W2 employees who already give 1/3 or more of our income to taxes. I'm amazed that so many pharmacists here support giving this up.
 
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TranslationalRPh said:
I guess I don't understand your position. Most people on here are not yet a part of the investing class that Buffet is talking about but rather the working class that pay plenty in taxes as a portion of earned realized income.
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Well the conversation was about ending Roth so that portion of the tax code is what’s relevant.

I agree that (almost?) no one here is on that level but clearly some people want to be so maybe it helps to keep who benefits from the tax code in mind. It’s not the working classes, that’s for sure.

I guess my position is that taxing investments lower than income inherently favors people who invest. Shocking I know. Where does such brilliance come from?

But seriously. Ending the Roth will not materially affect anyone on this boards life so the chicken little routine just reads a little rich to me. Even if ALL tax advantages accounts went away you still pay a lower tax rate for realized gains in a brokerage account than you do for your W2 wages. That’s my point.
 
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mentos said:
Yep, the main reason they want to take away the Roth is because of whales like Peter Thiel who made 5 billion tax free. Those are the real rich people. We are merely middle class W2 employees who already give 1/3 or more of our income to taxes. I'm amazed that so many pharmacists here support giving this up.
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Agreed 💯 Peter Thiel and his ilk enraged everyone...well him and Propublica who blew up his spot.

However, this proposal felt like an overcorrection.
 
owlegrad said:
I guess my position is that taxing investments lower than income inherently favors people who invest. Shocking I know. Where does such brilliance come from?
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I get where you are coming from I think.

My issue with the Roth specifically is that those monies grow tax free because taxes have already been paid at the earned income level. That feels reasonable, given that when most people need Roth funds, they may not be in a position to work or at least will be approaching the end of their careers. Thus, if the money used to invest has already been taxed at the earned income level, it seems reasonable for returns to have a favorable tax status as investments.

With regards to how significantly it can affect ones retirement, Dave Ramsey estimates the difference between a traditional and Roth could be in the millions for a decent investor. Now, of course there are a lot of assumptions there, but it can be substantial even for non Peter Thiels. However, I get your point too. We should have a balanced perspective and not over react. That's great advice.
 
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owlegrad said:
Who pays a 33% tax rate?

Here comes the tax bogey man everyone! Run away! Be scared!
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I'm at a 38% marginal rate between FED/FICA/state. Not including the other minor state things (disability, unemployment, ect). My effective rate is 25% with 401k, 29.5% without. None of that includes property tax or regressive taxes like gas/sales/alcohol/ect.

If you add up just the FED/FICA/State/local taxes up together I'm sure my total tax rate would be close to 50%
 
mentos said:
I don't understand why any politicians would go for this since they all do backdoor Roth too?
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Congressional representatives are eligible for a pension after just 5 years. Also I'm sure with both parties doing insider trading (see Covid committee investing in 3M), this is considered pennies for them.

Also wow, what a wild ride. Going to do a backdoor Roth as soon as 2022 begins just in case they resurrect this bill.
 
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StockPharmD2020 said:
High earners. No kids. Federal tax. State tax. Tax on investment sales.

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“Tax on investment sales”…would that be capital gains tax? If so that would be 20% on the high end I believe so significantly less than 33%. Or are you adding the 20% to the income tax rate to make it sound higher? Or is there a capital gains tax above 30% that I am unaware of?

Hypothetically it is possible to be in that 37% tax bracket for wages but surely anyone in that bracket will avail themselves of tax avoidance strategies to reduce their effective tax rate.

I feel like I am sounding like I am defending taxes. I hate taxes as much as the next guy, I just think it is helpful to know what the actual numbers are rather than just saying stuff that he little or no basis in reality. Basically, let’s keep it real.

Does anyone here pay an effective income tax rate of >30%? If so, why?
 
owlegrad said:
“Tax on investment sales”…would that be capital gains tax? If so that would be 20% on the high end I believe so significantly less than 33%. Or are you adding the 20% to the income tax rate to make it sound higher? Or is there a capital gains tax above 30% that I am unaware of?

Hypothetically it is possible to be in that 37% tax bracket for wages but surely anyone in that bracket will avail themselves of tax avoidance strategies to reduce their effective tax rate.

I feel like I am sounding like I am defending taxes. I hate taxes as much as the next guy, I just think it is helpful to know what the actual numbers are rather than just saying stuff that he little or no basis in reality. Basically, let’s keep it real.

Does anyone here pay an effective income tax rate of >30%? If so, why?
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Short term is your income tax rate so very easy to be over 20%

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owlegrad said:
“Tax on investment sales”…would that be capital gains tax? If so that would be 20% on the high end I believe so significantly less than 33%.
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I've never held a stock long enough for long term capital gains tax.

Also not sure why people always bring up no kids vs kids. We get 2k child tax credit, that's less than half a paycheck. Makes no difference when it comes to which tax bracket you're in.
 
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mentos said:
I've never held a stock long enough for long term capital gains tax.

Also not sure why people always bring up no kids vs kids. We get 2k child tax credit, that's less than half a paycheck. Makes no difference when it comes to which tax bracket you're in.
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Good point on the child tax credit.

So why not just hold the stocks long enough to pay the long term capital gains rate? You would boost your returns by what, 10-20% by lowering your tax burden? I guess it wouldn’t be as much fun if you weren’t trading in and out of stocks constantly?
 
StockPharmD2020 said:
Short term is your income tax rate so very easy to be over 20%

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I hadn’t thought of that, good point. Of course the obvious simple solution is to hold stocks until you pay the long-term rate but you are still right.
 
owlegrad said:
Good point on the child tax credit.

So why not just hold the stocks long enough to pay the long term capital gains rate? You would boost your returns by what, 10-20% by lowering your tax burden? I guess it wouldn’t be as much fun if you weren’t trading in and out of stocks constantly?
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Aren't you also getting $$ every month?

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owlegrad said:
I hadn’t thought of that, good point. Of course the obvious simple solution is to hold stocks until you pay the long-term rate but you are still right.
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I tried that. Got killed on stocks I was up big on.

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owlegrad said:
I hadn’t thought of that, good point. Of course the obvious simple solution is to hold stocks until you pay the long-term rate but you are still right.
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Yes, good stocks should be held long. I didn't know what I was doing at first and bought high risk speculative meme stocks. Last year I panic sold NIO around 44-45 and PLTR around 28-29 and had to pay regular income taxes on the profit, but that ended up working out.
 
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So is this official for 2022 or we can still use the backdoor ROTH IRA conversion?
 
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Dreamer716 said:
So is this official for 2022 or we can still use the backdoor ROTH IRA conversion?
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Yes. Hopefully the stupid Build Back Better plan goes away.
 
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footfairy said:
I'm at a 38% marginal rate between FED/FICA/state. Not including the other minor state things (disability, unemployment, ect). My effective rate is 25% with 401k, 29.5% without. None of that includes property tax or regressive taxes like gas/sales/alcohol/ect.

If you add up just the FED/FICA/State/local taxes up together I'm sure my total tax rate would be close to 50%
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I am effective 13% federal tax rate (gross income) + 5 % state + FICA 7.6% (actually a tad lower since I max out the SS component) = 25%
I would argue an alternative plan is to get rid of the backdoor roth, but increase the income limit for Roth contributions to something like 300k for a joint couple.
Does anyone think the billionaires are actually messing with a backdoor roth contribution of 6k a year? (unless I am wrong and there is a way of putting more into it?)
 
Dreamer716 said:
Got it. Lets say if I do it now and they change it later on this year, I'm not subject to penalty?
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My best guess is that it would depend on how the law is written. If the law penalizes Roth conversions retroactively then yeah you'll be penalized but if the new law only affects Roth conversions after the law is passed then no you won't be penalized.
 
metallideth said:
My best guess is that it would depend on how the law is written. If the law penalizes Roth conversions retroactively then yeah you'll be penalized but if the new law only affects Roth conversions after the law is passed then no you won't be penalized.
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How would the penalize it? There is no tax benefit in 2022. It's not like you pay less income tax today. You just gave 6k of protected gains.
 
metallideth said:
My best guess is that it would depend on how the law is written. If the law penalizes Roth conversions retroactively then yeah you'll be penalized but if the new law only affects Roth conversions after the law is passed then no you won't be penalized.
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I can’t ever ever a time where a tax law thst causes you to pay more to lose a benefit that was retroactive. So I would worry about that.
 
StockPharmD2020 said:
How would the penalize it? There is no tax benefit in 2022. It's not like you pay less income tax today. You just gave 6k of protected gains.
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Hypothetical scenario: Person A makes a $6000 Roth IRA contribution via backdoor IRA on January 2nd 2022 and the new law is passed on January 3rd 2022 which states that the backdoor IRAs from January 1st 2022 onwards aren't allowed. According to the new law hasn't person A technicially made an excess roth contribution and as a result be charged the 6% excess contribution penalty? His/Her Roth contribution amount is technically $0 and with no backdoor IRA loophole he/she has made an excess contribution.
 
metallideth said:
Hypothetical scenario: Person A makes a $6000 Roth IRA contribution via backdoor IRA on January 2nd 2022 and the new law is passed on January 3rd 2022 which states that the backdoor IRAs from January 1st 2022 onwards aren't allowed. According to the new law hasn't person A technicially made an excess roth contribution and as a result be charged the 6% excess contribution penalty? His/Her Roth contribution amount is technically $0 and with no backdoor IRA loophole he/she has made an excess contribution.
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It wouldn't be retroactive. The law would start on Jan 3.
 
mentos said:
Yes. Hopefully the stupid Build Back Better plan goes away.
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I have a Tesla reserved for later this year and I’m only gonna buy that sucker if I can siphon $7000 from the federal gov’t. Otherwise, maybe I’ll just get that M3 I’ve been wanting or something.
 
confettiflyer said:
I have a Tesla reserved for later this year and I’m only gonna buy that sucker if I can siphon $7000 from the federal gov’t. Otherwise, maybe I’ll just get that M3 I’ve been wanting or something.
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M3 will cost you a lot in repairs in a few years.
 
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