Ch-ch-ch-changes (to the tax code): Will we lose the Backdoor Roth IRA and Mega Backdoor Roth IRA in 2022?

Kelsey Lyman, Director of Operations, Convergence Financial


Roth IRAs are a favorite account among financial advisors and investors nationwide. Contributions are taxed in the year they are made, meaning that any gains realized are tax-free when distribution time rolls around. For individuals making over $140,000 and married couples (filing jointly) making over $208,000, the Roth IRA’s benefit has been a moot point, as they cannot contribute to a Roth IRA. 

Wait, what was all of that? English, please. Put simply, any money put into a Roth IRA and grown through investments over time is tax free when it’s withdrawn. This is a huge deal in retirement, when taxes add up quickly on money taken from taxable and traditional IRA accounts. If you can make your Roth IRA as large as possible through your working years, all that money will be safe from Uncle Sam in retirement. 

Unfortunately, if you make more than the income specified above, you don’t get to join the Roth IRA party – bummer. However, by utilizing the “Backdoor Roth IRA” or “Mega-Backdoor Roth IRA”, you can bypass the income limits and contribute your $6,000 contribution or up to $58,000 in the case of the Mega-Backdoor Roth strategy. 

If you’re over the income limit for a Roth IRA contribution, surely you’re asking, “Where can I sign up?”. In 2021, the Backdoor strategies are still fair game, and all that’s needed is the experience of a financial advisor who knows how to perform the paperwork necessary. However, time is ticking – legislation has been proposed to do away with the Backdoor and Mega Backdoor Roth IRA methods as early as 2022. 

The end of the year is approaching quickly, and so is the 2021 contribution deadline. If the Backdoor Roth IRAs head toward extinction, there’s no time like the present to implement this strategy. 

If you’d like to learn more about the Backdoor Roth IRA, Mega Backdoor Roth IRA, or other planning strategies, we’d be happy to visit with you. 

The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. 

“Any money put into a Roth IRA and grown through investments over time is tax free when it’s withdrawn.”