The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: boarder42 on February 05, 2015, 02:45:32 PM
-
Could leave only 72t
http://www.msn.com/en-us/money/retirement/president-obamas-2016-budget-targets-retirement-accounts/ar-AA90CwO?ocid=iehp
-
Conveniently nobody cares what the President proposes anymore.
-
I wouldn't worry about it. The current congress and the current president won't get anything done.
-
i didn't read the whole article, but a back door roth contribution is different than a roth conversion ladder. The back door roth contribution offers a way for high-income individuals to make roth contributions. The roth conversion ladder offers a way to make tax-free contributions to an tIRA while earning a high-income and convert to roth at a lower tax rate.
back door roth: http://www.bogleheads.org/wiki/Backdoor_Roth_IRA (http://www.bogleheads.org/wiki/Backdoor_Roth_IRA)
roth conversion ladder: http://www.madfientist.com/traditional-ira-vs-roth-ira/ (http://www.madfientist.com/traditional-ira-vs-roth-ira/)
-
they both use the exact same tax loop hole. being able to move IRA funds to a Roth IRA. effectively would be eliminated by item 2 in the attached article
-
they both use the exact same tax loop hole. being able to move IRA funds to a Roth IRA. effectively would be eliminated by item 2 in the attached article
I thought the roth conversion ladder was accomplished by triggering tax on pre-tax contributions to traditional IRAs. It seems that the article indicates that it only restricts after-tax conversions and thus is aimed at back door roths.
-
they both use the exact same tax loop hole. being able to move IRA funds to a Roth IRA. effectively would be eliminated by item 2 in the attached article
I thought the roth conversion ladder was accomplished by triggering tax on pre-tax contributions to traditional IRAs. It seems that the article indicates that it only restricts after-tax conversions and thus is aimed at back door roths.
I have to agree with Mr. Coyote. This proposal would only prevent after-tax dollars from being converted. This means non-deductible traditional IRAs (back door Roth) and after-tax traditional 401(k) contributions (mega back door Roth).
Converting a portion of a traditional 401(k) to a Roth IRA (laddered or not) triggers taxable income so the IRS (theoretically) gets their share. The other two are not taxable events and are clearly exploiting a loop hole in the law.
Here is another article on the subject: http://blogs.wsj.com/totalreturn/2015/02/02/obama-would-block-strategies-to-pump-up-roth-iras/?mod=trending_now_8
The statement is in a table (no detailed explanation) on page 121 of the budget: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/budget.pdf
-
This general idea is what scares me about roths in general.
I am saving a decent amount (11k a year) in roth because of how it works now. If in 2, 5, 20 years it starts losing the benefits (no RMD, etc. etc.), then it will mean I made a bad decision and should have gone pure traditional.
In life in general, planning ahead beats living for the day. In tax policy... seems like maybe we should live for the day. if traditional IRA is better RIGHT NOW (because of the tax benefits), then do it. Would suck to suffer with a roth then get hammered later as an easy way to fix a government budget mess.
-
For most mustachian types (people who will have much lower expenses in retirement compared to working year earnings), the Roth is a crap deal. Roths are VERY overrated in this situation. Roths are VERY overrated in almost all situations in fact unless you have a zero marginal tax rate.
Read this: http://www.gocurrycracker.com/roth-sucks/
I agree with their conclusion that a taxable account with ETFs is the way to go for flexibility.
-
Yeah I was freaking for a second, too, until I realized the conversion ladder (which is what will allow me to access my stash before 60) is unaffected by this proposed change. Worst case scenario, I'm putting 11k more in my brokerage account instead of a Roth IRA (since I'm over the income threshold for the deduction).
-
The statement is in a table (no detailed explanation) on page 121 of the budget: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/budget.pdf
The budget itself includes no detailed explanation of the proposed restriction on Roth conversions of after-tax amounts, but the "Green Book" gives the full proposal and explanation therefor.
The text of the proposal is as follows:
"The proposal would permit amounts held in a traditional IRA to be converted to a Roth IRA (or rolled over from a traditional IRA to a Roth IRA) only to the extent a distribution of those amounts would be includable in income if they were not rolled over. Thus, after-tax amounts (those attributable to basis) held in a traditional IRA could not be converted to Roth amounts. A similar rule would apply to amounts held in eligible retirement plans."
See page 173 ("Limit Roth Conversions to Pre-Tax Dollars") of the following pdf:
http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2016.pdf
-
Converting a portion of a traditional 401(k) to a Roth IRA (laddered or not) triggers taxable income so the IRS (theoretically) gets their share. The other two are not taxable events and are clearly exploiting a loop hole in the law.
I don't understand this.
If I convert a traditional tax deducted IRA or 401k to a roth, I pay tax on the conversion.
If I fund a roth directly, I do so with money I paid tax on.
Ol' Sammy gets his tax either way. I don't see how either keeps the IRS from getting "their share".
The only thing it does is prevent high income makers from participating in a roth at all. Which, I suspect, is the point.
-
Your last sentence is indeed the point. Everything else remains as it is today. Everything you said is correct.
Sent from my iPhone using Tapatalk
-
So, to be clear, this isn't a magic loophole that avoids paying tax on income. But instead a loophole that opens up the benefits of a roth to higher income earners.
-
gotcha glad its not going away. Limit roth conversion to Pre tax dollars which keeps the ladder open. Thanks everyone
-
So, to be clear, this isn't a magic loophole that avoids paying tax on income. But instead a loophole that opens up the benefits of a roth to higher income earners.
Correct. That's what the "Back door Roth" is about - allowing high income earners to save money in a Roth when normally they can't do so