That’s why Dems’s proposed cancellation of the Roth conversion for the rich doesn’t start until 2032.

Photo by Mike Kline (notkalvin) | The moment | Getty Images

House Democrats have proposed a rule outlawing Roth for the wealthy, as part of a broad package of tax hikes for wealthy Americans.

But, according to tax experts, there is an irony in this proposal.

The Roth conversion is a mechanism that allows taxpayers to transfer their traditional (pre-tax) retirement savings to Roth funds after tax. The person must pay income tax on the converted amount.

Unlike other aspects of the Democrats’ tax package, most of which will take effect in 2022, the ban on Roth’s conversion of pretax funds will not take effect for 10 years. Experts believe that the long lead time will give wealthier taxpayers the opportunity to convert their retirement accounts before permission is denied, leading to additional tax revenue for the Democratic political agenda.

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But the clause will also contribute to the very conversions they’re trying to cut, according to Ed Slott, an accountant and retirement expert at Rockville Center, New York.

“[The legislation] is helping to accelerate conversion rates for Roth, Slott said.[Democrats] need money.

“They still want all of the conversion tax proceeds to cover the rest of the bill.”

Of course, after 10 years, the rich will no longer be able to use the Roth transformations to circumvent existing income restrictions in Roth’s individual retirement accounts.

Currently, single people cannot contribute to Roth’s IRA if they earn at least $ 140,000 in 2021 (there is a $ 208,000 cap for married couples filing a joint tax return).

But there is no income cap on the Roth transformation, allowing the rich to get the Roth IRA backdoor.

Roth IRAs are financially attractive with tax-free investment income, no future taxes on withdrawals and no mandatory annual minimum payments.

However, a Democratic tax proposal passed last month by the House Ways and Means Committee will bar Roth from a retirement plan to-tax IRA or employer-sponsored retirement plan for single tax payers with annual incomes of more than $ 400,000 (and married couples with more than 450,000 USD) after 2031.

“By keeping the Roth conversion for high-income taxpayers on the table for another decade, lawmakers can count on revenue from those conversions for budget projections,” wrote certified financial planners Jeffrey Levin and Michael Keats, respectively, chief planning officer and chief executive officer. planning department. strategy for St. Louis-based Buckingham Wealth Partners in analysis tax proposals.

A spokesman for the House Ways and Means Committee did not respond to requests for comment on the timing of the proposal.

The Joint Tax Committee, a Congressional tax control specialist, estimates the allocation will raise $ 749 million by 2031. This is a small fraction of the $ 2 trillion or so that will be raised over a decade from other tax provisions targeting the wealthy and corporations that will fund measures to expand education, childcare, paid leave, and health care, among other things.

The Senate has yet to present its tax reform package, which may not include a ban on Roth’s transformation.

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