Page 22 - Investment Advisor March 2022

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Slott advises to wait on contributing to backdoor Roths
“until we know if this Build Back Better [stimulus bill] or some
version of it, will ever pass. If anything passes, that provision I
believe will be included because there’s no big opposing con-
stituency for it. There’s nobody picketing at the Capitol: ‘Save
the Backdoor Roth!’”
The backdoor Roth is a workaround to the Roth IRA contri-
bution limits: The client first contributes to a nondeductible
traditional IRA (where there is no income limit) and then con-
verts those funds to a Roth IRA, Slott explained.
“The existing provision [in the Build Back Better bill] says
the ban on the backdoor Roth will be effective as of Jan. 1, 2022.
But we’re already past that,” Slott said. “So [the advisor’s] point
was: ‘Well, they can’t disallow something retroactively once you
already did it.’ But I’m more conservative, why take a chance?”
However, if a client contributes to a backdoor Roth, and has
to “undo it” Slott continued, there’s “a lot of paperwork and
reporting, and who needs that? And the more paperwork and
changing you do, the more likely mistakes are going to be made.”
Also banned under Build Back Better would be so-called mega
backdoor Roths, Slott explained in a recent blog for ThinkAdvisor,
for those in company retirement plans who can contribute after-
tax funds to the plan and then convert them essentially tax-free
to their Roth IRAs. “For 2022, that can be for up to $61,000. If you
have clients who do these each year, have them hold off in 2022
until we know if they will be allowed,” he said.
1099 Mistakes much because I used the old table.’”
Review Form 1099s, Slott warns, as they can be rife with errors. As Slott explains in the Slott Report, the most commonly
Form 1099s “are coming out right now for retirement distribu- used tables are the Uniform Lifetime and the Single Life
tions, interest dividends, capital gains; review them, don’t just Expectancy Tables. The Uniform Lifetime Table is used by
send them out,” Slott said. “We’re finding there are lots of mistakes most IRA owners who need to take 2022 lifetime RMDs. The
in there — maybe some of these institutions were short-staffed or Single Life Expectancy Table is used by IRA beneficiaries who
people were working from home…You type the wrong code into must take an annual RMD for 2022.
a 1099-R for retirement distributions, it can make the difference The Secure Act raised the RMD age from 70 ½ to 72; it’s the
as to whether something is taxable or not or subject to a penalty.” same as the new 2022 RMD table, Slott said.
Due to COVID-19 and “more mistakes that we’re seeing” on “Before the Secure Act, [the IRS] used age 70; life expectancy
the 1099s this year, “you can’t rely on the first version of the the period was 27.4 years. Now they start at age 72, and guess
1099 that either Schwab, Fidelity, Vanguard or whatever com- what the life expectancy is [under the new IRS tables]? 27.4
pany you’re with because they are constantly issuing corrected years. So it’s moved up by two [years] but if you’re starting,
1099-R forms as they find different things — capital gains, a lot you’re still taking out the same amount, which is about 3.65%.”
of different items,” Slott warns. So “you’re starting later but taking out the same amount. In
Hold off on filing tax returns until at least the end of February, general, for most people it’s a year to two years more life expec-
Slott advises. “I found [errors] on my own, with Schwab, I think, tancy, which means your RMDs will be slightly lower. But if
I had two or three corrected 1099s for big statements.” you’re a beneficiary, taking RMDs and you’re younger, the new
RMD isn’t that much different — it is a little lower — but because
New RMD Tables it’s based on life expectancy, the shorter your life expectancy
Help clients collect all their information for their required (people in their 70s) are going to see more of a decrease in the
minimum distributions, Slott said. RMDs in their taxes than younger people who inherit.”
There are new life expectancy tables, “but only for 2022
RMDs,” Slott said. The Internal Revenue Service hasn’t made Qualified Charitable Distributions
such a change in 20 years, he said. The problem with QCDs, Slott said, is that “most people do
“You don’t want a client coming back saying, ‘I took out too them at the end of the year because that’s when they’re in gift-

20 INVESTMENT ADVISOR MARCH 2022 | ThinkAdvisor.com