November 05, 2021

Buckingham Talks: What Build Back Better Means for You

Tax legislation doesn’t often feel like such a rollercoaster ride, but the Build Back Better social spending and infrastructure bill currently before Congress has given us quite a run as provisions in it got dropped, added back, and modified in successive versions. Below is a replay of our Buckingham Talks webinar from earlier this week, as well as an update on what’s in and what’s out of the proposed legislation since we spoke about it.

Proposed legislation: What’s the same as last week?

The latest version of the House’s draft legislation returns none of the major revenue-related items that were stripped from its previous iteration. Thus, based on this draft, the following would continue to see NO changes for 2022:

  • Top ordinary income tax rate (37%)
  • Top long-term capital gains rate (20%)
  • Estate and gift tax exception (~$12 million)

The latest draft retains the proposed changes to:

  • The application of the NIIT (3.8% surtax) to S corporation profits of high earners
  • Additional surtaxes of 5% and 3% for taxpayers with income greater than $10 million and $25 million, respectively (applies to trusts at $200,000/$500,000)
  • Limit on excess business losses made permanent
  • Limit for 1202 Qualified Small Business Stock (QSBS) reduced to 50% for taxpayers with income greater than $400,000
  • Enhanced Child Tax Credit (CTC) for 2022

Proposed legislation: What’s changed since last week?

The latest House draft would replace the current $10,000 cap on deductions for state and local taxes (known as SALT) with a $72,500 cap through 2031. Notably, the change would be effective for 2021.

This would be a huge win for high-but-not-astronomically-high income tax payers. A very large portion of the benefit from such a change would go to those with between $250,000 and $1 million of income annually. Many taxpayers in this group were likely preparing for a higher tax bill in 2021, but incredibly, if things largely remain as is and the SALT cap is raised as proposed, many such individuals could see a significant decrease in their tax bills through 2025 (beginning in 2026, AMT changes made by the TCJA would sunset, resulting in the loss of SALT deductions for many of these taxpayers under the AMT). That said, don’t celebrate yet. Several senators, led by Bernie Sanders, are advancing an alternative solution that would permanently remove the cap for those with less than $400,000 of income and permanently limit such deductions for those with incomes above that amount. Right now, the House proposal seems to have the widest support, but it is far from a guarantee.

Most of the retirement account-related provisions are now back in (with some adjustments to effective dates), including:

  • Elimination of the backdoor Roth/mega backdoor Roth, effective next year (2022)
  • Prohibition on IRA/Roth IRA contributions for taxpayers with more than $10 million in retirement accounts and high income (400,000 single/$450,000 joint), effective in 2029
  • RMDs for taxpayers with greater than $10 million in retirement accounts and high income (400,000 single/$450,000 joint), as well as “special” Roth RMDs for those with more than $20 million in retirement accounts, effective 2029
  • No Roth conversions at all for high-income (400,000 single/$450,000 joint) taxpayers, effective 2032
  • Statute of limitations on IRA non-compliance extended to six years, effective 2022

It’s anyone’s guess what’s going to happen with these retirement-related proposals. None of them have a significant impact on the revenue numbers associated with the bill, and so last-minute inclusions and/or removals don’t present the budgetary challenges that changing other aspects of the legislation would (e.g., getting rid of the surtaxes on ultra-high income). Accordingly, the prudent thing to do, at this point, is to assume that the changes will stick in the bill’s final version. The good news there, though, is that only the proposed elimination of the backdoor/mega backdoor Roth would be effective for 2022. With that in mind, if you typically use the backdoor Roth and haven’t done so already, you should talk with your advisor about making your 2021 traditional IRA contributions as soon as possible to ensure that those contributions can be converted before the end of the year (2021).

Also, thanks to a “last-minute” compromise, one month of paid family leave is now back in the bill.

Retirement Account Inflation-Adjusted Amounts for 2022

In addition, the IRS has now released its retirement-account-related inflation-adjusted contribution limit updates for 2022.


Contribution limit: $6,000 (no change)

Catch-up contribution: $1,000 (no change)


Salary deferral limit: $14,000 (adjusted up $500)

Catch-up contribution: $3,000 (no change)


Contribution limit: $61,000 (adjusted up $3,000)

401k/403b/457 plans

Deferral limit: $20,500 (adjusted up $1,000)

Catch-up contribution: $6,500 (no change)

Annual additions limit (415(c) limit): $61,000 (adjusted up $3,000)

Roth IRA contribution phaseouts

Single: $129,000 - $144,000 (adjusted up $4,000)

Joint: $204,000 - $214,000 (adjusted up $6,000)

The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. Individuals should speak with qualified professionals based upon their individual circumstances. The analysis contained in this article may be based upon third-party information and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed.

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Tax Strategies

About the Author

Jeffrey Levine

Chief Planning Officer

Clients deserve a knowledgeable advisor who is up to date on the latest changes in the laws, regulations, tools, and trends that may impact their overall financial plan. As Chief Planning Officer, Jeffrey works closely with the Buckingham team to create a seamless and enjoyable experience for clients that makes it easy to plan and instill confidence as they work towards their most important goals.

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