The draft of the Build Back Better (BBB) bill approved by the House on November 19th has many potential benefits to the middle class, but it also creates tax laws that affect 401K, IRA, and Roth IRA, investors.  It has not been approved by the Senate or signed by President Biden yet.

-The Build Back Better Bill benefits many middle-class members, including parents, the elderly and disabled who need care at home, and people who are not offered healthcare through work, to name a few groups.  It is also designed to combat climate change.

-The Build Back Better Bill is designed to be paid for by corporations and individuals earning over $400,000 per year or couples making over $450,000.

-There is language that limits conversions to Roth IRA’s for all income levels.

Benefits of the BBB bill include tax credits for parents, help to pay for child care (up to 50% of the cost), universal pre-school for three and 4-year-old children, rebates on care for the elderly and disabled who need care at home, numerous benefits to people without health insurance and those who do not receive health insurance from their employer, reductions in prescription drug costs, and a strategy to help combat climate change.  There are many benefits, but they will be costly, and the White House has created a website that has outlined the benefits and how it will pay for these benefits.

The Roth IRA was proposed by Senator William Roth back in 1998 when he said: “I think the American people are taxed too much. So I strongly support and have advocated for many years reducing the taxes on the working people of America.” You effectively pay the taxes upfront on a retirement contribution with a Roth IRA.  The benefit is realized when you take the money out at retirement because there are no taxes due, regardless of how much the account has grown.

Some investors have profited so much that Congress is aiming at them.  For instance, Peter Thiel, who founded Paypal, invested company stock in his Roth IRA, and it is now worth over $5 Billion, tax-free (Source:

The BBB bill is designed to be paid for by corporations and individuals who earn over $400,000 or couples earning over $450,000, but some aspects affect investors regardless of their current income.  Some new details include:

  • Tax large profitable corporations from paying zero in tax.
  • Tax corporations that buy back their stock rather than investing in the company.
  • Tax individuals who make over $10 million per year an additional 5% tax and over $25 million per year an additional 3% tax.
  • Hire 86,852 IRS agents to help enforce existing tax laws focusing on individuals making over $400,000.
  • Force individuals with balances over $20 million to make distributions immediately.
  • Starting in 2022, backdoor Roth and mega backdoor Roth conversions would be outlawed, regardless of income level. You can click here to learn more about backdoor Roth basics:

This last point is the most important to investors.  If you have any money in a 401K or a traditional IRA after-tax, you may only have a couple of weeks to convert these monies to a Roth IRA.  The way the law stands today, you can convert these investments, tax-free, into a Roth IRA.  Once the conversion is complete, it does not matter how much you earn in the investment account:  It will be tax-free moving forward. So if you or anyone you know has money in a 401K or traditional IRA that is after-tax, it should be converted to a Roth IRA or Roth 401K immediately.  Please get in touch with us today if you’d like us to review your investment holdings to see if we can help you before it’s potentially too late.

If you have any questions about taxes, your individual investment portfolio, our 401(k)-recommendation service, if you would like to schedule a review meeting or anything else in general, please give our office a call at (586) 226-2100.  Please feel free to forward this commentary to a friend, family member, or co-worker. If you have had any changes to your income, job, family, health insurance, risk tolerance, or overall financial situation, please contact the team at Summit Financial. We hope you learned something today. We would love to hear any feedback or suggestions if you have any feedback or suggestions.


Kenneth R. Wink

With contributions from Zach Bachner, Robert Wink, and James Wink


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