Will the “Build Back Better” Plan Eliminate Roth IRAs – Mega Backdoor Roth IRAs for Good?

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The recent version of the Build Back Better Act has brought back retirement law changes that will curb high balance accounts and popular wealth building strategies including backdoor Roth IRAs and after-tax 401(k) contributions. The goal: Tax the wealthiest taxpayers to help pay for the new Social and Climate bill that is currently being debated in Congress.
History of Roth:
A Roth IRA can be a great way to save for retirement since the accounts have no required minimum distributions and you withdraw the money tax-free.
The Roth IRA was introduced as part of the Taxpayer Relief Act of 1997.
Is named for Senator William Roth, the author/founder

Here’s some of the fine print:
Backdoor Roth IRA’s
Backdoor Roth IRA’s – These are where someone makes too much to contribute to a Roth IRA, and they can put non-deductible contributions to an IRA and immediately convert to a Roth (owing no taxes)
Eliminated by limiting rollovers and conversions to taxable accounts after Dec 31, 2021.
Backdoor Mega Roth IRA’s
Same as the Backdoor Roth, except it allows much greater amounts to be deposited.
Prohibits all after-tax contributions to 401(k)s after Dec. 31st, 2021.
Also prohibits converting existing after-tax IRA amounts to a Roth IRA after Dec 31, 2021.
Both Backdoor Roth and Mega Roth IRA’s are regardless of income level
Roth Conversions
Eliminates Roth conversions for higher income earners above $400k for individuals and $450k for married couples after Dec 31, 2021.
New contribution limits
Prohibits new contributions for IRA holders with a total of $10 million in IRA assets.
Applies to married couples with income over $450,000, and individual income over $400,000
New distribution rules for larger accounts
Required to take a special minimum withdrawal of 50% of the amount over $10 million the year following you reaching this number.
More restrictive provisions over $20 million.
Begins Dec 31st, 2028
New Reporting Requirements
Recordkeepers (TD/Schwab/Fidelity) will be required for annual reporting of all accounts over $2.5 million.
Also, reporting of where the assets are held (Roth/Traditional)
Begins dec 31, 2028
Once this data is available it could lead to lowering the threshold of Special Minimum Withdrawals from $10 million to who knows where
Longer timeframe for IRS to go after violators (6 years, instead of 3)
Stay tuned to this channel as this information is very fluid..
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