Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
So, this BBBA (I think it stands for Build Back Better Act) proposal has passed the House, and is going to the Senate for consideration. It has to do with various new benefits (some of which look outlandish and not fundable, and no way the Senate would approve them), and many of the benefits have no relevance to retirees, but there are two items that do relate to retirement:
1. Backdoor Roth conversions would be discontinued. There would be the cutoff annual income ($400k for single taxpayers) above which Roth conversion would be prohibited (so, automatically, no more than $400k in trad IRA funds could be converted to Roth in one year, and generally less than that, since people tend to have at least some income in the years in which they convert to Roth). I think the maximim annual trad IRA contribution would be also lowered, but I only skimmed that part.
With respect to Roth, that would seem to result in greater total taxation of Roth conversions for high earners, probably motivating more such people to not convert, but just take RMDs from trad IRA (which would also result in greater taxation of SS benefits, lower lifelong-tax-free growth of the accounts (due to added difficulty of Roth conversion), and lower amounts people could leave to heirs tax-free in a Roth account).
2. People earning less than 100% of federal poverty level would be eligible to buy a subsidized ACA healthcare plan (currently, such people are only eligible for Medicaid, but in various states cannot get Medicaid due to various additional requirements, like actually being employed a certain number of weeks per year (TX), or "needing premium assistance" however the state decides to determine what "needing" means (MA)). Per new regulations, everyone making under 400% fpl would be able to buy a more or less subsidized ACA plan - at least that is my understanding. This would bring more money into the health insurance system, from people who are now unable to qualify for ACA due to annual earnings under 100% fpl, but can't get Medicaid in their state either, due to special requirements in addition to low income - I imagine some early retirees would be in that category.
While some parts of this benefit package are definitely going to be blocked by the Senate (like all employers providing mandatory one month of paid vacation for all full-time employees, or tremendous mandatory increase in hourly pay for childcare workers), I think that the above things that would affect retirees actually could have a chance of passing in the final draft.
Any comments/thoughts? Would any of this affect you?
Those 2 things won't affect me, but thanks for doing the research.
Well, I didn't do actually any research (not even sure that I got the facts exactly right), but just came across this in the news. It appears that the upper income people who planned on backdoor Roth strategy, or on Roth conversions in last years towards retirement, are screwed. It also appears that people who make less than 100% fpl in taxable income but do not qualify for Medicaid in some states (eg, because they are not employed but draw only investment income - the way most very early retirees do) will be able to buy an ACA plan (and the hospitals will be finally reimbursed for taking care of the previously uninsured people with no ability to pay medical bills, or uninsured people will not bankrupt paying medical bills), which is good. It looks like these two measures (unlike some other parts of the bill) will pass. Particularly the second measure seems to have bipartisan support (Dems want everyone insured, and Repubs want businesses, including hospitals, actually paid for their services).
I think the bill that passed the House has some Medicare things that will be helpful to retirees. A hearing benefit was one (exam, hearing aid every 5 years). Lots of stuff related to drugs: Cap on things like insulin prices, a $2000 limit on out of pocket drug costs if you have a part D.
Beyond that, it also locks in the current ACA subsidy structure (higher subsidies, no hard cliff)
I think the bill that passed the House has some Medicare things that will be helpful to retirees. A hearing benefit was one (exam, hearing aid every 5 years). Lots of stuff related to drugs: Cap on things like insulin prices, a $2000 limit on out of pocket drug costs if you have a part D.
Beyond that, it also locks in the current ACA subsidy structure (higher subsidies, no hard cliff)
True, I saw insulin etc part D. Regarding ACA subsidy structure, right, the %fpl hard cliffs are currently (temporarily, or permanently if BBBA pases) smoothed out, but there is still no option for people below 100% fpl income to buy an ACA plan. It does not affect me right now; however (after I retired from self-employment at the age of 60 in 2020, and continued buying the same insurance plan that I had bought for 15+ years with full premiums sice my pre-retirement earnings were very far from any cliffs :-), my obsession with avoidance of taxation in retirement went a bit too far, and I belatedly realized that in 2024 (ie, when I am 64), my taxable income may end up being actually just below 100% fpl! I doubt MA would approve me for Medicaid considering the state requirement to "need" payment assistance (which I don't strictly speaking need, since my annuity self-support is way above 400% fpl, only the majority of it is the return of premium (ie, of my own after-tax savings), and not a taxable income), plus I really wouldn't want to be on Medicaid. Being able to buy an ACA plan based on MAGI under 100% fpl could come really handy to me in 2024 (if my taxable income indeed falls below 100% fpl - which could happen if they raise the 100% fpl substantially, due to inflation).
On a different subject (but related by way of being a healthcare bill that was also passed by bipartisan consensus), surprise billing for medical services will be legally eliminated nationwide on Jan 1. If you can avoid getting totalled in a car accident on a trip out of state (ie, outside of your provider network) for the next 24 days, you will never again have to worry about being bankrupted by surprise bills for out-of-network medical services in the US!
Neither would affect me. I would not want to spend the taxes on a Back Door Roth anyway.
Well, if you don't pay taxes on Roth conversion, you'll have to pay them on RMDs from traditional IRA. Being able to convert substantial amounts to Roth early in life, while still working (via backdoor Roth conversions), results in tremendous subsequent tax-free accumulation of profit. I did my Roth conversions straight (ie, not by the backdoor method) at the age of 59 and 60, and despite the taxes on conversion (which I did minimize by converting during a market dip in 2019 and market crash in 2020), the tax-free growth in a single year following the end of conversion has already been more than twice what I paid in federal and state taxes on the conversion. Although my Roth looks a tiny bit ill at the moment, that is irrelevant, considering that I don't plan on touching it for 20 years (until my early 80s), during which time it will have to grow tax-free a good deal. Imagine if I could have done a backdoor Roth conversion when I was 30, and the account had 50 years (rather than 20 years) to grow tax-free! But that option is likely going to be eliminated, the government does not want to lose tax revenue on 50 years of growth of any substantial money in Roth accounts. That is why they want to go back to low-limit Roth contributions among lower earners, and no option for any Roth contributions via backdoor Roth among higher earners, in the population that earns income, ie, is presumably young enough to have something like 50 years time to grow their Roth tax-free.
Well, if you don't pay taxes on Roth conversion, you'll have to pay them on RMDs from traditional IRA. Being able to convert substantial amounts to Roth early in life, while still working (via backdoor Roth conversions), results in tremendous subsequent tax-free accumulation of profit. I did my Roth conversions straight (ie, not by the backdoor method) at the age of 59 and 60, and despite the taxes on conversion (which I did minimize by converting during a market dip in 2019 and market crash in 2020), the tax-free growth in a single year following the end of conversion has already been more than twice what I paid in federal and state taxes on the conversion. Although my Roth looks a tiny bit ill at the moment, that is irrelevant, considering that I don't plan on touching it for 20 years (until my early 80s), during which time it will have to grow tax-free a good deal. Imagine if I could have done a backdoor Roth conversion when I was 30, and the account had 50 years (rather than 20 years) to grow tax-free! But that option is likely going to be eliminated, the government does not want to lose tax revenue on 50 years of growth of any substantial money in Roth accounts. That is why they want to go back to low-limit Roth contributions among lower earners, and no option for any Roth contributions via backdoor Roth among higher earners, in the population that earns income, ie, is presumably young enough to have something like 50 years time to grow their Roth tax-free.
First thanks for posting this thread. It is a good read. Personally as those that spoke up backdoor Roth conversions wouldn't affect me. I don't have that kind of problem to worry about. I do have money in pre-taxed 401k that I will have to take RMD's but hey I am happy to have it. I know people around me with nothing saved.
For my personal feeling towards them taking that part out and making high income earners pay more and closer to a fair share is okay with me. The high income earners already can pass on $11.5 million tax free and money inherited above that level is subject to a higher tax. I agree with the premise that the law is for. There should not be any reason that the ultra rich can pass on ultra high levels of wealth to heirs. Hell if someone gave me $1,000,000.00 and put that in my bank account I would be very happy.
As for the politics of the entire BBBA the reason some of this has been beaten about is that we have two parties that are at odds and one party right now is pissed off that they are no longer the party in power. These ideas were put out by both parties but because the president is of the other party the bigger crybabies on the one are doing everything to scuttle anything that makes the current occupant in the white house look good. Even to the detriment to their own constituents. It is why I am not registered as a republican or a democrat. I don't plan on ever becoming either of those because I like both and I hate both. Until they can learn to work together I plan on voting for whomever is not an incumbent. I have been doing that for years now anyway.
Again thanks for starting this thread. I probably screwed it up with my personal politics but I am not sorry.
Well, if you don't pay taxes on Roth conversion, you'll have to pay them on RMDs from traditional IRA. Being able to convert substantial amounts to Roth early in life, while still working (via backdoor Roth conversions), results in tremendous subsequent tax-free accumulation of profit. I did my Roth conversions straight (ie, not by the backdoor method) at the age of 59 and 60, and despite the taxes on conversion (which I did minimize by converting during a market dip in 2019 and market crash in 2020), the tax-free growth in a single year following the end of conversion has already been more than twice what I paid in federal and state taxes on the conversion. Although my Roth looks a tiny bit ill at the moment, that is irrelevant, considering that I don't plan on touching it for 20 years (until my early 80s), during which time it will have to grow tax-free a good deal. Imagine if I could have done a backdoor Roth conversion when I was 30, and the account had 50 years (rather than 20 years) to grow tax-free! But that option is likely going to be eliminated, the government does not want to lose tax revenue on 50 years of growth of any substantial money in Roth accounts. That is why they want to go back to low-limit Roth contributions among lower earners, and no option for any Roth contributions via backdoor Roth among higher earners, in the population that earns income, ie, is presumably young enough to have something like 50 years time to grow their Roth tax-free.
Can you explain what you said here: "I did my Roth conversions straight (ie, not by the backdoor method"?
What is the difference in the two methods?
eleanor rigby--
Thanks for starting this discussion. The two points you posted don't really impact me, so I won't shed a tear about taxing high incomes, or about providing ACA subsidies to a deserving class of citizens.
I find that the BBBA has many facets, most of them are favorable to the middle class. The staff at AARP has an easy to read summary of the overall act.
See if you can pick out the items that McConnell/Cruz gang will object to.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
