Retirement Issues Under Build Back Better Act

Technical topics regarding tax preparation.
#1
DH001  
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With respect to the Build Back Better Act ("BBBA") recently passed by House of Representatives, I understand that "backdoor" Roth conversions will be prohibited after 12/31/2021 if BBBA is enacted.

I am trying to figure out what exactly is prohibited after 12/31/2021, if BBBA is enacted, and have the following questions:

Scenario 1: John is self-employed and has $50,000 of modified adjusted gross income for all applicable years. Neither John nor his spouse are covered by an employer retirement plan. John contributes $5,000 to a Traditional IRA on 03/31/2022. Is John prohibited from converting all or a portion of the Traditional IRA to a Roth IRA in:
• 2022?
• 2035?

Scenario 2: John is self-employed and has $1,000,000 of modified adjusted gross income for all applicable years. Neither John nor his spouse are covered by an employer retirement plan. John contributes $5,000 to a Traditional IRA on 03/31/2022. Is John prohibited from converting all or a portion of the Traditional IRA to a Roth IRA in:
• 2022?
• 2035?

Scenario 3: John is self-employed and has $1,000,000 of modified adjusted gross income for all applicable years. Although John is not covered by an employer retirement plan, John's spouse is covered by an employer retirement plan. John contributes $5,000 to a Traditional IRA on 03/31/2022. Is John prohibited from converting all or a portion of the Traditional IRA to a Roth IRA in:
• 2022?
• 2035?

Scenario 4: John has $1,000,000 of modified adjusted gross income for all applicable years and is employed by ABC, Inc. On 03/31/2022, John resigns from ABC, Inc. at a time when the value of his pre-tax ABC, Inc. 401(k) account has a value of $3,000,000. Is John prohibited from doing a qualified rollover of all or part of his ABC, Inc. 401(k) account to a Rollover IRA and then converting all or a portion of the Rollover IRA to a Roth IRA in:
• 2022?
• 2035?

Scenario 5: John has $1,000,000 of modified adjusted gross income for all applicable years and is employed by ABC, Inc. On 03/31/2022, John resigns from his then employer, ABC, Inc. at a time when the value of his pre-tax ABC, Inc. 401(k) account has a value of $3,000,000. Is John prohibited from doing a qualified rollover of all or part of his ABC, Inc. 401(k) account to a Rollover IRA and then converting all or a portion of the Rollover IRA to a Roth IRA in:
• 2022?
• 2035?

Scenario 6: John is hired by XYZ, Inc. on April 1, 2022. May XYZ, Inc. have a 401(k) plan that provides a Roth 401(k) option to John in both 2022 and 2035 if:
• John has $50,000 of modified adjusted gross income for all applicable years?
• John has $1,000,000 of modified adjusted gross income for all applicable years?

Thanks!
 

#2
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DH001 wrote:With respect to the Build Back Better Act ("BBBA") recently passed by House of Representatives, I understand that "backdoor" Roth conversions will be prohibited after 12/31/2021 if BBBA is enacted.

I am trying to figure out what exactly is prohibited after 12/31/2021, if BBBA is enacted, and have the following questions:

I see these are good questions. I do not know why there are no replies, so I will reply to get ball rolling.

My answers are based on:

- The bill: https://www.congress.gov/bill/117th-con ... /5376/text
- Interpretation: https://www.forbes.com/advisor/retireme ... nversions/

Which can summarized below:

- nontaxable conversion to roth not allowed (except from designed roth 401(k)) from 2022
- taxable or nontaxable conversion to roth not allowed from high income people (400k single 450k married) from 2032
- For high income individual defined above, contribution not allowed if you have to withdraw the lesser of retirement balance over 20 millions and the roth IRA amount plus 50% of retirement balance over 10 millions from 2022 (the bill said 2022, the explanation said 2029). I will use 2022.

DH001 wrote:Scenario 1: John is self-employed and has $50,000 of modified adjusted gross income for all applicable years. Neither John nor his spouse are covered by an employer retirement plan. John contributes $5,000 to a Traditional IRA on 03/31/2022. Is John prohibited from converting all or a portion of the Traditional IRA to a Roth IRA in:
• 2022?
• 2035?

Since John's income is low enough, so his traditional IRA is pretax, which means he will pay tax when converting to Roth IRA, and therefore this is allowed in 2022. This is also allowed in 2035 because his wage is low.

DH001 wrote:Scenario 2: John is self-employed and has $1,000,000 of modified adjusted gross income for all applicable years. Neither John nor his spouse are covered by an employer retirement plan. John contributes $5,000 to a Traditional IRA on 03/31/2022. Is John prohibited from converting all or a portion of the Traditional IRA to a Roth IRA in:
• 2022?
• 2035?

This is allowed in 2022 because it is taxable conversion. It is not allowed because he earns too much.

DH001 wrote:Scenario 3: John is self-employed and has $1,000,000 of modified adjusted gross income for all applicable years. Although John is not covered by an employer retirement plan, John's spouse is covered by an employer retirement plan. John contributes $5,000 to a Traditional IRA on 03/31/2022. Is John prohibited from converting all or a portion of the Traditional IRA to a Roth IRA in:
• 2022?
• 2035?

This is not allowed in 2022 and 2035 because the traditional IRA is pretaxed, so it is a nontaxable conversion.

DH001 wrote:Scenario 4: John has $1,000,000 of modified adjusted gross income for all applicable years and is employed by ABC, Inc. On 03/31/2022, John resigns from ABC, Inc. at a time when the value of his pre-tax ABC, Inc. 401(k) account has a value of $3,000,000. Is John prohibited from doing a qualified rollover of all or part of his ABC, Inc. 401(k) account to a Rollover IRA and then converting all or a portion of the Rollover IRA to a Roth IRA in:
• 2022?
• 2035?

This is allowed in 2022 because it is a taxable conversion. This is not allowed in 2035 because John earns too much.

DH001 wrote:Scenario 5: John has $1,000,000 of modified adjusted gross income for all applicable years and is employed by ABC, Inc. On 03/31/2022, John resigns from his then employer, ABC, Inc. at a time when the value of his pre-tax ABC, Inc. 401(k) account has a value of $3,000,000. Is John prohibited from doing a qualified rollover of all or part of his ABC, Inc. 401(k) account to a Rollover IRA and then converting all or a portion of the Rollover IRA to a Roth IRA in:
• 2022?
• 2035?

I do not see a difference between this question and the previous question.

DH001 wrote:Scenario 6: John is hired by XYZ, Inc. on April 1, 2022. May XYZ, Inc. have a 401(k) plan that provides a Roth 401(k) option to John in both 2022 and 2035 if:
• John has $50,000 of modified adjusted gross income for all applicable years?
• John has $1,000,000 of modified adjusted gross income for all applicable years?

It depends how much John has in his retirement accounts. If John has 0, then

income $50,000 + year 2022 = yes (low balance)
income $50,000 + year 2035 = yes (low balance)
income $1,000,000 + year 2022 = yes (low balance)
income $1,000,000 + year 2035 = yes (low balance)

If John has 30,000,000, then

income $50,000 + year 2022 = yes (low income)
income $50,000 + year 2035 = yes (low income)
income $1,000,000 + year 2022 = no (high income and high balance)
income $1,000,000 + year 2035 = no (high income and high balance)

because the law does not kick in until
Please consider visiting this post where my question at the end has not been answered yet:
viewtopic.php?f=8&t=12065, thanks!
 

#3
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The likelihood of BBBA passing is close to zero. No reason to spend a ton of time studying it.
Dave

Taxation is the price we pay for failing to build a civilized society. ~ Mark Skousen
 

#4
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SlipperyPencil wrote:The likelihood of BBBA passing is close to zero. No reason to spend a ton of time studying it.

It is good to know. Is there a determined moment that marks the bill being dead? Thanks.
Please consider visiting this post where my question at the end has not been answered yet:
viewtopic.php?f=8&t=12065, thanks!
 

#5
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I am pretty sure that a bill (in the US Congress) only dies when the clock strikes noon on January 3rd of an odd-numbered year. However, I think we are looking at practicalities here. If the Republican conference in the US Senate remains united, they have fifty votes against the legislation. It is clear from press reports from numerous sources that Sen Manchin is not going to vote for the bill in its current form. If anything is going to pass on the casting vote of the Senate President, there is going to have to be much horse-trading beforehand. The two sides are, publicly at least, quite far apart.

There is only so much that the Senate can achieve. If the Parliamentarian rules that any provision does not qualify as a reconciliation item, that provision would require sixty votes to get out of the Senate. So there is less room for negotiation. Even if the bill is successful in the Senate, it must go to the House. There, the biggest stumbling block, according to credible press reports in the last few months, seems to be the left wing of the Democratic Party. The Democratic Party has a mere five-seat majority in the House, I believe. So all it takes is three Democrats to vote against, six to abstain or some combination of the two.

I have an addiction to following legislation so that I do not file returns that may require amending in the near future. However, I have given up on this one. If it passes, I do not think it will be in anything like its current form.
 

#6
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Farmington, Michigan
SumwunLost wrote:I have an addiction to following legislation so that I do not file returns that may require amending in the near future. However, I have given up on this one. If it passes, I do not think it will be in anything like its current form.

I've never been addicted to following legislation, but years ago I use to glance through the legislation, both the house and senate versions. Then I'd read through the joint committee version sent to the president. Congress stupidly started passing tax legislation every year, then, because the stupidity of congress isn't great enough, they started passing multiple pieces of tax legislation every year. I stopped reading all those versions that were going to get changed numerous times.

Last year I informed clients about the proposed unemployment exclusion. I told them, "the bill went nowhere last year, it's been introduced again in this session of congress but has gone nowhere, there's been no talk about it in the press or congress so it doesn't look like it's going to go anywhere, but if by some miracle it passes, it will save you a lot of money." 100% of my clients with unemployment chose to delay filing their returns in the small chance it passed so they wouldn't have to pay me to amend the return. When the bill was added as an amendment to one of the bills late in tax season and passed, numerous preparers on the bulletin boards and email lists were complaining about having to file amended returns. I kept asking them why they didn't inform their clients of this possibility and rarely got an answer.

So I understand staying aware of what's going on, but going through a bunch of exercises related to legislation that has no chance of passing in it's current form is just a waste of time.
Dave

Taxation is the price we pay for failing to build a civilized society. ~ Mark Skousen
 


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