XHooker

😂

A legitimate concern, but we don’t even have the final version of the legislation to know the answer yet. So why swerve into partisan political name calling?

To quote Ronald Reagan “…there you go again.” I must be getting close to your safe space so I’ll just back away and say peace be with you.

Not my sandbox, but for a forum that says no politics, there sure are a lot of political discussions here.

BobbyLeeSwagger

To LJs point.. this thread is supposed to be about back door retirement conversions affecting many income levels in our pilot community. I initially closed it for concerns it would be the kind of political fight we've seen throughout apc. But I admit it has stayed reasonably civil and it's relevant so we're leaving it open for now.

Andy

At this moment in time, the Roth portion has been removed. https://www.asppa-net.org/news/brows...ciliation-bill

I personally emailed every D Senator plus (I) Angus King and my D Rep with the following message:
I am writing to your office because I just found out that the Reconciliation Bill eliminates Roth rollovers and contributions for my wife and I.
We grew up in the lower middle class and have saved all of our lives. We both have military pensions and we both work full time. In addition, my wife works a part time job to bring in additional money to save for retirement and assist our less fortunate relatives. Because of all of our hard work, our combined income is in excess of $500,000 per year.
So now this Reconciliation Bill will target our future Roth contributions and savings due to our income level. I understand the desire to go after those that have abused loopholes in the Roth system. However, your bill also goes after those of us who have worked VERY HARD all of our lives and are finally making a decent income. You folks have chosen to use a machete when a scalpel was appropriate.
We understand paying increased taxes at our income level. But attacking our retirement money is out of bounds.

So that was 49 Senators and 1 House Rep that I sent emails to. I didn't bother with sending an email to Bernie's office. I also called both of my D Senators' offices and my D Rep's office.

Just so you know the origin of the Roth elimination, it came from the House Ways and Means Committee. Pretty much every D on the Ways and Means Committee had to support the change in order for it to get through Committee, so keep their names in mind in this next election cycle. I will. https://waysandmeans.house.gov/subco...117th-congress


The real target of the Roth change was one single person ... Peter Thiel, founder of Paypal. The crappy elected officials chose to go after everyone making more than $200K to get him. And note that there was no indexing for inflation in their Roth changes. https://www.propublica.org/article/l...ree-piggy-bank

fcoolaiddrinker

Nice work and thank you!

Andy

Thanks. I haven't been this worked up over Congressional idiocy for a very long time.
Any guess on how much revenue was forecast to be generated over the next decade by eliminating the back door Roth? $5 billion and that's likely an overestimate.
Elimination of pretax Roth conversions (supposed to be phased in 2031) is revenue negative in the short term.

I consider the Roth to be the greatest single wealth builder for the middle/upper middle class. I don't mind taking a big tax hit today in order to avoid all future taxes on my savings.

S Corporations would have been a much better target, as that is full of abuse.

fcoolaiddrinker

Yup. It Was going to cost me $3400. I only do the catchup ira not 401 so that’s 7k * 2 taxed at 24% for me and the wife. Seems the backdoor gets threatened by both sides every few years. I believe I’ve written my reps about it before but I like the way you worded that and sent it to basically everyone.

XHooker

Andy, a little education for me. Why put in post tax dollars now to pull them out later with no taxes when you're presumably making less money?

ThumbsUp

By coverting them to Roth, the earnings are never taxed. In the case of the employer sponsored plan, this is only an option after you have completed your elective deferrals. So regardless of where you put that money, it’s an after-tax contribution. If that was no longer an option as was previously proposed, any earnings on that same money would be taxed.

In terms of a traditional IRA, being covered by a 401k at work sets the limits pretty low to be able to deduct that money and eliminates that option for basically everyone here. Also, most people’s earnings are too high to contribute to an Roth IRA, so that leaves the option of contributing non-deductible contributions, i.e. after-tax, to a traditional IRA and subsequently converting them to a Roth.

In both cases, there are no options to deduct those contributions from your income.

fcoolaiddrinker

Disregard my savings example. I didn’t save that it’s funded through a traditional IRA with post tax dollars each contribution year. The backdoor Roth IRA conversation just ensures I don’t pay tax on the principal or earnings when withdrawn at whatever tax rate I’m at that calendar year. Backdoor Roth IRA conversions are the one no brainer.

Andy

Because any gains on your money are taxed if it's not in a Roth. And both the initial money and gains are taxed at your current marginal rate; the gains are not taxed at the capital gains rate. In addition, the higher your income in retirement (and non-Roth IRA/401k withdrawals count as income), the higher percentage of your Social Security is taxed. Plus throw in the monthly rates for medicare part B ... the higher your lookback income, the more you pay monthly for medicare part B.

As an example, if you're 5 years from retirement and you're earning 8% per year on your pre-tax savings, you're going to pay taxes on 140% of what you put in IF you withdraw that money immediately after retirement.

My wife and I are savers so we've got more than enough savings outside of our retirements to live for at least a decade without touching any Roth money so that money will continue to grow tax free. Of course our military retirements help stretch out the date needed to withdraw Roth money.
Ideally, we'll live into our 80s without touching any Roth money. And then after we die, our heirs inherit that money tax free and can draw down the money over 10 years.

This year, we're bumping up against the 37% marginal tax bracket so all of my 401K roth conversions are being taxed at 35%. I'll take that hit as long as all future growth is tax free.

I hope that explanation helps. Fire away with any questions.