******UPDATE*******NOV 2, 2021*******

Unfortunately the elimination backdoor roth has been added back into the proposed legislation.

SALT elimination caps were added back in, so that may be some good news for those of you who were limited by those $10,000 caps previously.

However this seems to be a moving target and the bill still has yet to pass the HOUSE or more importantly the senate.

ORIGINAL POST

The framework for often revised “Build Back Better” social spending and climate bill unveiled Thursday reveals the good and bad omission of all retirement-related provisions.

Among the things missing from President Biden’s revised framework for the Build Back Better Act unveiled by the White House on Thursday? ALL the retirement-related provisions.

This is both good and bad news, with some provisions backed by the retirement industry and others opposed by it all stripped out of the leaner $1.75 trillion social spending and climate bill, as first reported Thursday by the American Retirement Association.

BACK DOOR ROTH LIVES ON

A series of provisions designed to close the so-called “back door” Roth IRA…….adios!

As a result of the bill be slashed down to $1.75 trillion with paid family and medical leave being taken out, led to the retirement plan coverage expansion(not the word I would use) provisions being removed. The framework, which is still not a sure thing to become law, would be paid for by establishing a 15% minimum tax rate on large corporations, creating a 1% surcharge on corporate stock buybacks and imposing a 5% surtax on income above $10 million and an additional 3% surtax on income above $25 million, among other things.

Words can’t describe how happy I am that Roth conversions and back door Roth’s are here to stay(for another year). The benefits these strategies provide can continue to be used by accumulators and retirees to improve their chances at retirement success.

So the “back door” Roth lives for another year, however I wouldn’t be surprised to see an attempted elimination next year. These budget negotiations have a track record of giving previews as to what may happen eventually.

What Is a “back door” roth?

It is a loop hole in the tax code where you can make a non-deductible contribution into a traditional IRA (up to $6k) and then immediately transfer it to a Roth IRA so it grows tax free. Now there are a lot of caveats that surround it including the pro-rata rule, so you should always consult your financial advisor and CPA.

Now For The Bad News.

What remains to be seen is whether some of the slashed retirement provisions reappear in some form of a SECURE Act 2.0 retirement reform bill, widely expected to be reintroduced in Congress next year. However for planning purposes this seems to give investors and retirees a warning that they may only have another year to take advantage or get their affairs in order as it relates to the “back door” roth.

There is not mention of SALT relief. SALT is an acronym for State and Local Tax, essentially the cap on property tax deductions at $10,000. However there is a chance it sneaks back into the final bill.

More to come as the bill continues to get molded as it makes its way through congress. And remember there is still a chance none of this passes.

About the Author

Erik Barnes, CFP®, is a fee-only financial advisor serving clients locally in Naperville, IL, and the surrounding Chicagoland area and throughout the U.S. He is a member of XY Planning Network, a group of fee-only financial advisors who focus on serving those in Gen X and Gen Y, as well as NAPFA, Fee-Only Network, and the Financial Planning Association. Erik has worked in financial planning for 20 years and takes great pride in helping clients on the road to retirement. When he’s not building financial plans, you can find Erik tinkering with his fantasy football roster or checking out one of the many food spots in Chicagoland.

Smarter Planning. Smarter Portfolios. Smarter Fees.