What is the Democrat obsession with removing backdoor Roth IRAs?

[sethmachine]

I recently got this notification from Fidelity about Biden's proposed tax changes: https://www.fidelity.com/learning-ce...udget-proposal

What would affect me most is this:

• Roth IRA conversions would be prohibited for high-income taxpayers, and "backdoor" Roth contributions, where after-tax traditional IRA contributions can be rolled into a Roth IRA despite income limits, would be eliminated.

Last time the definition of "high-income taxpayers" is a misnomer--I think would include almost anyone who can't normally deduct Traditional IRAs/contribute to Roth IRA normally, which is a lot of people who aren't really wealthy. In my point of view, what High income/wealthy to me is someone who can stop working indefinitely and not lose their house/starve to death forever.

If someone is already making high six/7 figures, not being able to do backdoor Roth conversions is going to be a drop in the bucket for how they accumulate their total networth. On the other hand, for someone like me who is "middle class" (earning far under $500K/year), the backdoor Roth IRAs are a massive way to build wealth long term without the tax drag that would be associated with a normal taxable brokerage account.

This specific proposal would adversely affect savvy, working folks like myself (anyone who has to work a salaried job for a living and can't stop working). Someone who is already wealthy / owns businesses / is not a W-2 worker by requirement would be harmed by this proposal.

[disneysteve]

Reminder that we DO NOT discuss politics in this forum. It’s fine to discuss policies but no pointing fingers at Republicans or Democrats or specific politicians.

[ua_guy]

I recently got this notification from Fidelity about Biden's proposed tax changes: https://www.fidelity.com/learning-ce...udget-proposal

What would affect me most is this:



Last time the definition of "high-income taxpayers" is a misnomer--I think would include almost anyone who can't normally deduct Traditional IRAs/contribute to Roth IRA normally, which is a lot of people who aren't really wealthy. In my point of view, what High income/wealthy to me is someone who can stop working indefinitely and not lose their house/starve to death forever.

If someone is already making high six/7 figures, not being able to do backdoor Roth conversions is going to be a drop in the bucket for how they accumulate their total networth. On the other hand, for someone like me who is "middle class" (earning far under $500K/year), the backdoor Roth IRAs are a massive way to build wealth long term without the tax drag that would be associated with a normal taxable brokerage account.

This specific proposal would adversely affect savvy, working folks like myself (anyone who has to work a salaried job for a living and can't stop working). Someone who is already wealthy / owns businesses / is not a W-2 worker by requirement would be harmed by this proposal.

I think it makes sense to have an income threshold to define "high income earner" with regards to the income distribution in the US, just like there are income thresholds for tax brackets. I tend to agree 500k or thereabouts definitely constitutes a "high income earner" even if they may not be able to retire immediately, at will.

The long term cap gains proposed tax over $1M makes more sense than a backdoor Roth contribution, I think.

None of it is likely to pass anyway.

[disneysteve]

These proposed changes are for people earning over 400K so it would only impact a tiny percentage of workers. Certainly the average worker wouldn’t be affected.

[myrdale]

Personally I think the income limits for contributing to a Roth IRA should be abolished completely.

[bjl584]

Most truly high income earners probably aren't receiving a W2 anyway or investing in traditional retirement plans such as a 401K, a pension, or a Roth.

They own businesses, real estate, receive stock options, etc.

[disneysteve]

Most truly high income earners probably aren't receiving a W2 anyway or investing in traditional retirement plans such as a 401K, a pension, or a Roth.

They own businesses, real estate, receive stock options, etc.

True, so removing the Roth conversion option for people
making over 400K targets a very small group. I guess if I was in that group I might be upset about it but I’m not even close.

[LivingAlmostLarge]

Lots of married couples fall into the $200k w2 workers, they will be penalized. But the really rich? It won't matter. Anyone making 7 figures is not sweating the small stuff and a roth is not their main savings category. At that income level you are saving in taxable accounts and looking for shelters.

I'm really annoyed being single top income bracket is $400k but MFJ is $450k. It should be $800k to be fair.

Also treating capital gains as income would be best for the really rich. Ever heard Mitt Romney and Warren buffer talk about it? Their tax returns show total % is 23.9% which is LTC 20% an 3.9% NIIT. $ are millions but percentage is never above that. They never hit 37%.

[ua_guy]

I'm really annoyed being single top income bracket is $400k but MFJ is $450k. It should be $800k to be fair.

Not to deflect, but this is a true injustice. At low income, MFJ is a benefit. At high income, it's a penalty for being lawfully married and it's just plain stupid when a couple has disparate incomes.

[Jluke]

I think top tax bracket is 609k vs 731k for single and MFJ.

still too close, but nothing I will ever need to worry about

[LivingAlmostLarge]

I don't get the marriage penalty applied to people who earn the same amount, it should just be equitably applied.

[disneysteve]

Lots of married couples fall into the $200k w2 workers

I think a household income of 400K puts you in the top 2% nationwide. It's a pretty elite demographic.

Personally I know quite a few people in that group since I know many two-doctor couples, but still, it's a tiny minority of Americans. These are folks who should have no trouble at all saving for retirement with or without Roth IRAs.

Call me a flaming liberal but I'd much rather see tax breaks that benefit the middle and lower income earners rather than the top 1 or 2% and corporations. Give relief to the people who need it most.

[myrdale]

.........These are folks who should have no trouble at all saving for retirement with or without Roth IRAs.

Call me a flaming liberal but I'd much rather see tax breaks that benefit the middle and lower income earners rather than the top 1 or 2% and corporations. Give relief to the people who need it most.

What you call relief for the middle class, I call a penalty on the rich.

Also keep in mind the 48% of households earning $100k or more live paycheck to paycheck. Just because someone earns a tremendous salary doesn't mean they are saving for retirement. I don't want to leave personal responsibility out of my defense of them though. If they earning that much and are not financially sound, they have serious issues beyond not saving for retirement.

[LivingAlmostLarge]

I would argue they should make it fair for all married not just those below. It seems more like you are pushing people who are high wage earners into non-marriages.

[FrostedMoose]

In the U.S., tax policy isn't so much about funding the treasury, as it is about social engineering and controlling the electorate. We should all be concerned about that, regardless of your tax bracket.

Regardless of the party, the more the Fed interjects itself into a free market economy, the more unintended - and severe - consequences that we eventually have. Anything that the Fed gets involved in - healthcare, housing, higher education, there is eventually runaway inflation. Then everyone starts pointing fingers and asking how we got here. The whole student loan "forgiveness" trope is a complete farce. There are bondholders (investors) on the other end of these student loans - maybe you and me. That debt isn't '"forgiven"; it's merely transferred to we, the taxpayers. The Fed actively tampering with the free bond market, through a decade of issuing treasury bonds and then immediately buying them back, got us all used to 3% mortgages, and house inflation went crazy. Now the rates are normal, no one can afford a house. Now there's a bright idea to offer a $10,000 tax credit to anyone selling a home. Number one, the price of the home just went up $10,000, and number two, you and I get to pay for that $10,000 credit. Meanwhile, our debt is $7 trillion and counting, and the rest of the world is very worried about it.

This country's fiscal policy is ape s*** whacked out crazy, and no one seems to know or care. Just keep kicking the can down the road with populist b.s.