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Comment by sokoloff | Hacker News Reader

Backdoor and Mega-backdoor Roth conversions do not allow unlimited contributions. They allow an unlimited conversion of (limited) contributions.

As for whether it ought to be legal, my view is that multiplication (of which both income taxation and compound investing returns are forms) is commutative and taxing an amount now (the conversion) and then having it grow for 20 years is no different than having it grow for 20 years and taxing it then (traditional IRA), assuming growth and tax rates remain the same.

A Roth conversion is in essence a bet on your marginal tax rate at withdrawal being higher than your marginal tax rate today.

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Your comparison assumes that the alternative to backdoor Roth is a traditional IRA contribution. The (ab)use of backdoor Roth contributions is commonly done by high-earning employees who have access to a 401(k)/Roth 401(k) plan. In this situation none of their IRA contributions are actually tax deductible at all!

So the 'backdoor' Roth contribution allows such people to invest post-tax dollars w/ Roth benefits when the IRS income limits seemingly make it clear that they shouldn't be able to contribute in this fashion. Why does the IRS have income limits on Roth IRA contributions but then allow them to be so easily bypassed in this manner?

> assuming growth and tax rates remain the same.

Big assumption.

> Why does the IRS have income limits on Roth IRA contributions but then allow them to be so easily bypassed in this manner?

I think TFA answers this. The limits were put in originally, and then as part of Bush-era tax cuts, as a way to raise current revenue, the conversion was allowed knowing that billions in taxes would be paid today in order to convert. They predicted $9 billion and got something like $30 billion instead.

Taxing the money now, when a large part of it could be passed via inheritance tax free later, is not necessarily bad policy.

I have been suspicious of Roth IRAs because I keep seeing sales taxes increase in the US and a push for something like a VAT. Which might negate most Roth savings (but not in this case).

I agree 100%.

I like cash over magical promises that can wiped away with the stroke of a pen.

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