By Sarah Brenner, JD
Director of Retirement Education

It’s hard to keep up with the news out of Washington these days! We have been getting a ton of questions on how the new tax proposals recently passed by the House Ways and Means Committee would impact Roth conversions. Here is the rundown.

After-Tax Conversions

Congress is looking to slam the door on the so-called “back door Roth IRA” and “mega back door Roth IRA” strategies. The key point to understand here is that these strategies involve conversions of after-tax dollars. For example, currently the back door Roth IRA conversion allows an individual to make a nondeductible after-tax contribution to a traditional IRA and then convert it tax-free to a Roth IRA. This is a way that higher earners can avoid the Roth IRA contribution limits and fund a Roth IRA.

The current proposals would end this strategy. It would also shut down the strategies of funding an employer plan with after-tax dollars and converting them to a Roth IRA or converting them to a Roth account within the plan.

These types of conversions would be outlawed beginning next year. This would apply to everybody, regardless of income.

Pre-tax Conversions

Many conversions do not involve after-tax dollars at all. Instead, they involve pre-tax funds that when converted result in a tax bill. These types of conversions would be allowed to continue next year. Congress loves the revenue they bring in and is not ready to quit them yet. Instead, pre-tax conversions would be subject to income limits beginning 10 years down the road, starting for 2032. The ability to convert pre-tax dollars would be eliminated for taxpayers with income over $400,000 if single and over $450,000 if married.

IRA owners with long memories may remember that Roth IRA conversions had an income limit in the aughts. Congress is looking to return to the bad old days and bring it back …. but not for ten years.

What You Can Do Now

First, take a deep breath and remember that right now we only have proposals. As anyone who watched School House Rock on Saturday mornings as child can tell you, it is a long path before a bill becomes a law.

However, it is smart to recognize that Roth conversions are on Congress’s radar. If you have been on the fence about converting to a Roth, 2021 may be your year. For back-door Roth conversions, it may be your last chance. For pre-tax conversions, the time might be right too. Congress is taking aim at the tax code, and current rates and rules may not be around for long.


Ready To Take



For more information about any of our products and services, schedule a meeting today.

Or give us a call at (803) 242-1050

Investment advisory services offered through Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser. Nothing on this website constitutes investment, legal or tax advice, nor that any performance data or any recommendation that any particular security, portfolio of securities, transaction, investment or planning strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations, execution of required documentation, and receipt of required disclosures. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD #175083.

 ADV Part 2A & Form CRS              Privacy Policy             Form CRS