Author Topic: Backdoor Roth Longevity?  (Read 1520 times)

Wolfpack Mustachian

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Backdoor Roth Longevity?
« on: January 06, 2018, 07:22:41 PM »
Obviously being able to pull money out of your 401k penalty free prior to "retirement age" is a huge benefit that makes maxing out your 401k a great idea for people planning on early retirement. I was just wondering if anyone has heard of the possibility of this option ever being eliminated?

MDM

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Re: Backdoor Roth Longevity?
« Reply #1 on: January 06, 2018, 07:28:43 PM »
Are you asking about
- backdoor Roth, or
- mega backdoor Roth, or
- Roth pipeline?

In any case, just about every year (the past two months being a particularly good example) one hears about various proposals to do this or that with various retirement saving options.  No way to know when or if any will come to pass.

Zamboni

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Re: Backdoor Roth Longevity?
« Reply #2 on: January 06, 2018, 08:03:39 PM »
I am planning a Roth pipeline if I get tired of my day job (right now I really like it), so it would be nice if the rules don't change . . . but I don't bank on it. If laws do change, we need to be nimble enough to succeed and reach our goals anyway.

Wolfpack Mustachian

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Re: Backdoor Roth Longevity?
« Reply #3 on: January 06, 2018, 08:50:20 PM »
OK, so apparently I need to do a little more digging into the details since I wasn't aware there were three options :-). What I was referring to is what I've seen about converting money five years in advance from a 401K to Roth and continuing to do that every year, paying simple taxes on the money as it becomes Roth but not a penalty. I guess a 10% penalty (as I believe it would be) is not the end of the world, but it would certainly make an impact if you're relying on a significant portion of your retirement income coming from this method. As you both commented, anything could happen and we certainly need to be thinking of things in case it does, which was the purpose of my question here, as it seems that since the money is sequestered into a retirement specific account, the government could eliminate any loop holes and make you take a penalty to withdraw it early without much recourse on our part if they so desired.

MDM

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Re: Backdoor Roth Longevity?
« Reply #4 on: January 06, 2018, 08:57:49 PM »
OK, so apparently I need to do a little more digging into the details since I wasn't aware there were three options :-). What I was referring to is what I've seen about converting money five years in advance from a 401K to Roth and continuing to do that every year, paying simple taxes on the money as it becomes Roth but not a penalty. I guess a 10% penalty (as I believe it would be) is not the end of the world, but it would certainly make an impact if you're relying on a significant portion of your retirement income coming from this method. As you both commented, anything could happen and we certainly need to be thinking of things in case it does, which was the purpose of my question here, as it seems that since the money is sequestered into a retirement specific account, the government could eliminate any loop holes and make you take a penalty to withdraw it early without much recourse on our part if they so desired.
That's a Roth pipeline, as discussed in How to withdraw funds from your IRA and 401k without penalty before age 59.5.

See Backdoor Roth IRA and Mega Backdoor Roth IRA for more on those.

Happy reading!

Wolfpack Mustachian

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Re: Backdoor Roth Longevity?
« Reply #5 on: January 06, 2018, 10:09:25 PM »
Thanks for the info, MDM!

matchewed

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Re: Backdoor Roth Longevity?
« Reply #6 on: January 07, 2018, 10:14:52 AM »
In regards to the original question there have been several threads bringing this up over the years. With some to my recollection going as far as to claim it will happen soon (it never did).

It is a potential thing that may happen but until there is an actual bill brought before Congress it is not something you should plan around. There is probably no gain for it to the government as you pay taxes on the amount converted.

VoteCthulu

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Re: Backdoor Roth Longevity?
« Reply #7 on: January 07, 2018, 10:26:44 PM »
Yes, it is possible they could remove, restrict, or replace the law that currently allows the Roth pipeline to work. I think it has a low likelyhood, but there are some options if it does happen:
1) Create a 72t SEPP if you have a large enough tax deferred account and it still exists.
2) Lower your spending by 10% to pay the early withdrawal penalty.
3) When 55+ you can get any job with a 401k plan, roll your tIRA into it, then quit and take normal withdrawals.