Obama proposed budget to take away Traditional to Roth Conversion

[happyfeet]

From Limbaughs Website(not a fan of the guy but this info is interesting).  The laddering conversion is one of the methods to early retirement.  I have researched it but being in our 50's does not seem to apply but thought I would share this info. Thoughts?


"Wealthy Americans will not be the only investors affected by these proposals.  MarketWatch went through [Obama's] budget and found that there are more than a dozen provisions in the [Obama] budget that target retirement accounts. They aren't all bad, but the proposal to change the rules on Roth IRAs would hit middle class savers the hardest.  Under the Obama plan employees would no longer be allowed to convert traditional retirement accounts to Roth IRAs.

"Further, [Obama] wants to impose required minimum distributions (RMD) on Roth IRAs, which, according to MarketWatch, is the most egregious proposal.  Unlike traditional IRAs, contributions are made to Roth IRAs after taxes, but then they aren't taxed again on earnings that accumulate over the years. Currently people can withdraw as much or as little from these [Roth IRAs] as they like any time after the age of 59½."   

[MandalayVA]

Link to the MarketWatch article so that hypocritical blowhard's website can be avoided:

http://www.marketwatch.com/story/president-obamas-2016-budget-targets-retirement-accounts-2015-02-05

[seattlecyclone]

I'm pretty sure the proposal was only to eliminate conversions of after-tax traditional to Roth rollovers (aka the "backdoor Roth IRA"). The regular Roth ladder would still be an option.

It's mostly irrelevant though, since Congress won't pass it.

[biscuitwhomper]

I'm pretty sure the proposal was only to eliminate conversions of after-tax traditional to Roth rollovers (aka the "backdoor Roth IRA"). The regular Roth ladder would still be an option.

It's mostly irrelevant though, since Congress won't pass it.

This was my take too.  I started to get pretty freaked out since the ladder is a huge part of my upcoming strategy.   I hope you are right.

[Indexer]

Wealthy Americans will not be the only investors affected by these proposals.  MarketWatch went through [Obama's] budget and found that there are more than a dozen provisions in the [Obama] budget that target retirement accounts. They aren't all bad, but the proposal to change the rules on Roth IRAs would hit middle class savers the hardest.  Under the Obama plan employees would no longer be allowed to convert traditional retirement accounts to Roth IRAs.

I'm sorry, but I believe this piece of information is false.  The proposal prevents you from converting 'after tax' money in a traditional to a Roth.  This is a direct response to the fact that the IRS recently said you could build up after tax money in a 401k and then convert it to a Roth.  I'm not sure what the IRS was thinking since this would allow people to pump huge amounts of money into Roth IRAs.  I kind of expected them to fix this.  It also shuts down the backdoor Roth IRA.  There is a reason its called the 'backdoor Roth.'  You aren't suppose to be able to do it.  Its a tax loophole CPAs and Financial Advisors found to help rich clients pump more money into retirement accounts.  This doesn't surprise me they are fixing it.  It was only a matter of time.  This won't hit the middle class really at all.  It will hurt the upper middle class and rich.

Under the new rules you would be able to convert a traditional IRA to a Roth.  Limbaugh is just trying to drum up ignorant anger there.

Now there are plenty of things in the budget that are scary.  Maximum IRA balances(this is the really scary one).  Max tax benefits for IRAs.  RMDs on Roths(which technically already existed but the beneficiary has the RMD). 

There are also a few good things.  No RMDs on smaller IRAs.  You can officially do inherited IRA indirect rollovers(60 day rollovers) which will save a lot of headaches especially when a will/POD form isn't filled out perfectly.

The good news.  None of the bad will pass congress.

[Eric]

This non-issue was raised two days ago as well:

http://forum.mrmoneymustache.com/ask-a-mustachian/back-door-roth-going-away/

[Tabaxus]

Do I use the backdoor Roth?  Yes.  Do I wish I had more years to use it?  Yes.  Do I think it should exist?  Lol, of course not.  It's an obvious loophole, and it shocks me that the IRS did not shut it down years ago (step transaction doctrine would easily shut it down, no legislation required).  Do I think this will pass?  No.  Do I think Obama may push the IRS to use other weapons to shut it down?  Potentially, yes.

[milesdividendmd]

+1

It is both completely rational to take advantage of the backdoor Roth strategy and axiomatic that it is completely unfair and should be eliminated.

[gimp]

Do I use the backdoor Roth?  Yes.  Do I wish I had more years to use it?  Yes.  Do I think it should exist?  Lol, of course not.  It's an obvious loophole, and it shocks me that the IRS did not shut it down years ago (step transaction doctrine would easily shut it down, no legislation required).  Do I think this will pass?  No.  Do I think Obama may push the IRS to use other weapons to shut it down?  Potentially, yes.

Exactly how I feel. I will use it to my advantage but I don't believe it should exist. It's a gimme to exactly the people who don't really need it.

[2lazy2retire]

Is there anyway to filter messages that start with Obama, seems to be a lot showing up here lately, me thinks a bit of trolling going on. All are in the guise of some concern over tax breaks that a lot of us would be interested in.