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The Mega Backdoor Roth Contribution: A 2022 Update

Last summer it was revealed that Paypal co-founder Peter Thiel owned a Roth IRA worth billions of dollars.  Roth IRA's being what they are, under current tax rules neither he nor his beneficiaries will ever pay taxes on this balance.  And politicians being what they are, large tax-advantaged account balances have now been caught up in the political tug of war that is the debate over the Build Back Better Act.

In September, the House Ways and Means Committee voted not only to limit the ability of wealthier taxpayers to contribute to IRA's, but to force them to take premature distributions once their tax-advantaged accounts (retirement plans plus IRA's) attained a combined $10 million value.  The bill also prohibited conversions of after-tax retirement account balances into Roths, not just by multimillionaires but by everyone.  This proposal would effectively put the kibosh on the so-called Mega Backdoor Roth Contribution strategy.

Then around Halloween, it was announced that all of these retirement-related measures had been dropped from the bill.  And the following week, like a vampire re-emerging from the crypt, the retirement-related measures were all added back, although some with delayed implementation dates.  So stay tuned.  In the meantime, the Build Back Better bill hasn't yet passed the Senate, and until it gains full Congressional approval, the Mega Backdoor Roth Contribution strategy is still allowable.  And any type of legislation under debate in Congress is likely to change before it becomes law, if it ever does. 

The Mega Backdoor Roth Contribution strategy can be a very useful one if you'd like to contribute more excess cash flow to tax-advantaged accounts and if your retirement plan allows it (which more and more do).  I've previously written an Articles on Wealth Management Topics blog post on the Mega Backdoor Roth Contribution strategy, so if you'd like to learn more about it, just click on the preceding link.


About the Author

Paul Winter, MBA, CFA, CFP® is a Fee-Only financial advisor and fiduciary in Salt Lake City, UT. His independent wealth management firm, Five Seasons Financial Planning, provides professional portfolio management and objective financial planning services to individuals and families, and to their related entities including trusts, estates, charitable organizations, and small businesses.

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