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Mega, ‘Back-Door’ Roths Might Get a (Brief) Reprieve


It’s beginning to look like further action on the Build Back Better budget bill will be pushed back to 2022—which would probably delay the effective dates of two controversial retirement plan provisions.

Capping a months-long process of negotiations among Democrats, the House approved an amended version of the $1.7 trillion Build Back Better Act (H.R. 5376) Nov. 19 on a near party-line vote of 220-213, with one Democrat voting no. Since then, the legislation has been pending in the Senate. And while the lawmakers had a goal of approving the legislation by the end of the year,  with plenty of controversial issues still at play—and a razor-thin majority in the Senate—it seems increasingly likely that the bill won’t come up for a vote until the new year.

If so, it also seems likely that the effective dates of two key retirement plan provisions[i] would also be pushed forward. First, the provision that would eliminate all so-called “back door” Roth conversions with after tax contributions to either qualified plans or IRAs regardless of income level—which would have been effective for distributions, transfers and contributions made beginning in 2022—would be pushed back to 2023. (That is, of course, assuming the provision remains in the bill—you will recall that these provisions were pulled out in October, before being reintroduced a week later.)

The second provision would eliminate Roth conversions in general for both IRAs and qualified plans for high-income taxpayers.[ii]Currently slated to apply to distributions, transfers and contributions made in taxable years beginning after Dec. 31, 2031, that effective date might well shift back to Dec. 31, 2032.

NAPA’s Government Affairs team continues to engage in discussions with Capitol Hill staff about these issues, and their possible implementation. Rest assured that the team continues to monitor the situation on the ground closely, and will keep you apprised of updates as things develop. 

Stay tuned.

[i] Note also that the effective dates for the provisions that would prohibit additional contributions to individual retirement plans for certain high-income taxpayers with large retirement account balances and that would impose mandatory required minimum distributions for certain high-income taxpayers with large retirement account balances could slip—though it’s not certain. These provisions currently have proposed effective dates of tax years beginning after Dec. 31, 2028. In addition, various other provisions contained in the legislation have effective dates for tax years beginning after Dec. 31, 2021. 

[ii] Those with taxable income over $400,000 (single) $425,000 (head of household), or $450,000 (filing jointly).