By: Anne Tergesen
With Congress looking to rein in Roth conversions, the tax-saving option could go away
Many Americans are using a previously little-known tax method to boost their savings. Now, the government is trying to stop it.
The tax strategy at issue is the mega-backdoor Roth conversion and it has allowed some Americans to amass sizable balances in tax-free Roth retirement accounts. On Sept. 15, the House Ways and Means Committee approved legislation from House Democrats that would prohibit use of the mega-backdoor Roth conversion starting Jan. 1, 2022.
The proposal is one of a series of measures Democrats are backing in an effort to prevent the wealthiest Americans from shielding multimillion-dollar retirement balances from taxes. The move is part of a broader agenda that includes raising taxes on higher income Americans and cracking down on tax avoidance to help pay for measures including the party’s $3.5 trillion healthcare, education and climate bill.
The legislation also proposes eliminating Roth conversions of after-tax contributions to traditional individual retirement accounts starting Jan. 1, 2022. It would require most people with aggregate retirement-account balances above $10 million to take distributions, regardless of their age. And it would ban holding unregistered securities, including private equity, in IRAs.
Read the full story here.