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The RWR067 is a proposal by the United States Congress that could potentially eliminate the Backdoor Roth IRA and bring about several other changes to the tax code. While the Backdoor Roth IRA may not be a well-known or widely used investment option, its elimination could have significant impacts on high-income earners and those looking to maximize tax-free growth in their retirement accounts.

What is the Backdoor Roth IRA?

A traditional IRA allows individuals to contribute pre-tax dollars up to a certain limit each year. The money grows tax-free until it is withdrawn in retirement, at which point it is taxed as income. However, for high-income earners, the ability to contribute to a traditional IRA may be limited or eliminated altogether due to income restrictions.

The Backdoor Roth IRA allows these individuals to contribute to a traditional IRA, then convert the funds to a Roth IRA. Roth IRAs allow for tax-free growth and withdrawals in retirement, but contributions are made post-tax. The Backdoor Roth IRA essentially allows high-income earners to bypass the traditional IRA income restrictions and still take advantage of the benefits of a Roth IRA.

What are the proposed tax changes?

RWR067 includes several potential tax changes, including:

– Elimination of the Backdoor Roth IRA: This provision would eliminate the ability to convert traditional IRA funds to a Roth IRA, essentially closing the Backdoor Roth IRA loophole.

– Increase in the top individual tax rate: The proposal would increase the top individual income tax rate from 37% to 39.6%.

– Increased capital gains tax rates: The proposal would increase the capital gains tax rate from 20% to 25%, with an additional 3.8% surtax for high-income earners.

– Elimination of the step-up in basis at death: Currently, when someone inherits an asset, the value of the asset is stepped up to its current market value, meaning the recipient can sell it without paying any capital gains taxes. This provision would eliminate that step-up in basis.

What are the potential impacts?

The elimination of the Backdoor Roth IRA could impact high-income earners who are looking for tax-free growth in their retirement accounts. Without this option, they may be forced to contribute to a traditional IRA and pay taxes on their contributions and withdrawals in retirement.

The increase in individual tax rates and capital gains tax rates could impact individuals who earn high incomes or who have significant investment income. The elimination of the step-up in basis could impact beneficiaries of estates, who may be required to pay capital gains taxes on assets inherited from their loved ones.

Overall, the RWR067 proposal could have significant impacts on the tax code and how individuals and families plan for retirement and estate planning. As with any proposed legislation, it is important to monitor the progress and potential impacts of these changes.