In this episode of Adam Live, Adam Bergman, Esq., founder of IRA Financial, talks about the Build Back Better Act, which was passed by the House on Friday, has provisions related to retirement plans, specifically, IRAs. Adam will discuss strategies involving the Roth and whether or not you should consider a Roth conversion.

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About IRA Financial:

IRA Financial Group was founded by Adam Bergman, a former tax and ERISA attorney who worked at some of the largest law firms. During his years of practice, he noticed that many of his clients were not even aware that they can use an IRA or 401(k) plan to make alternative asset investments, such as real estate. He created IRA Financial to help educate retirement account holders about the benefits of self-directed retirement plan solutions.

IRA Financial Group is a retirement account facilitator, document filing, and do-it yourself document service, not a law firm. IRA Financial Group does not provide legal services. No attorney-client relationship exists between Client and IRA Financial Group, its management, salespersons or IFG’s in-house legal counsel. IRA Financial Group provides IRA retirement facilitation service and CANNOT provide Client with legal, investment, or financial advice. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.

IFG is not engaged in rendering legal, accounting or other professional services. If legal advice or other professional assistance is required, the services of a competent professional person should be sought. (From a Declaration of Principles jointly adopted by a Committee of the American Bar Association & a Committee of Publishers and Associations.). The scope of Professional Services does not include the costs of any custodian related services.

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Roth Conversions and the Build Back Better Act: Exploring the Potential Impact

Roth conversions have long been a popular strategy for tax-savvy individuals looking to optimize their retirement savings. With the introduction of the Build Back Better Act, this tactic has come into the spotlight. In this article, we will explore what Roth conversions are and how they might be impacted by this proposed legislation.

Firstly, let’s understand the concept of a Roth conversion. A Roth conversion involves converting funds from a traditional IRA or employer-sponsored retirement account, such as a 401(k), into a Roth IRA. The key difference between these two types of retirement accounts lies in how they are taxed. Contributions to traditional IRAs and employer-sponsored accounts are made with pre-tax dollars, meaning they reduce your taxable income in the year of contribution. However, qualified withdrawals from these accounts are taxed at ordinary income rates.

On the other hand, Roth IRAs are funded with after-tax dollars, meaning contributions are made with money on which you have already paid taxes. The advantage of a Roth IRA lies in the fact that qualified withdrawals, including both contributions and earnings, are tax-free in retirement. This can be highly beneficial, especially if you anticipate being in a higher tax bracket in the future or expect taxes to increase overall.

Now, let’s discuss the potential impact of the Build Back Better Act on Roth conversions. The legislation proposes various tax law changes, including potential modifications to the taxation of capital gains and income for high-earning individuals. While details of the final law are subject to negotiations and changes, one provision currently being discussed is the elimination of the backdoor Roth conversion strategy.

The backdoor Roth conversion is a workaround used by high-income individuals to contribute to Roth IRAs despite being above the income limit for direct contributions. It involves making a non-deductible contribution to a traditional IRA and subsequently converting those funds into a Roth IRA. This strategy allows individuals to take advantage of the benefits of a Roth IRA, even if their income exceeds the limits for direct contributions.

If the Build Back Better Act eliminates or restricts the backdoor Roth conversion strategy, it could limit the options for high-income earners to contribute to Roth IRAs, potentially affecting their retirement planning. However, it is essential to note that this is just one potential provision of the proposed legislation, and the final outcome may differ.

Additionally, the Build Back Better Act proposes other changes, such as increasing tax rates for high earners, modifying the taxation of capital gains, and introducing new tax credits and deductions. These changes can have broader implications for individuals considering Roth conversions, as their overall tax planning strategies may need to be adjusted.

It is important to consult with a professional financial advisor or tax expert to understand the potential impact of the Build Back Better Act on your specific situation. They can provide personalized advice based on your income, retirement goals, and the current tax landscape.

In conclusion, Roth conversions have long been a valuable tool for individuals looking to optimize their retirement savings. The proposed Build Back Better Act may introduce changes that impact the ability to utilize the backdoor Roth conversion strategy and could have broader implications for tax planning and retirement readiness. Stay informed, stay proactive, and seek professional guidance to navigate these potential changes successfully.