The proposed legislation would end the ability to convert after-tax contributions in both 401(k) plans and traditional IRAs to a Roth after Dec. 31, 2021, effectively killing both of these options.
People who have been making after-tax contributions to their 401(k) plan to fund a mega backdoor Roth conversion need to make some decisions this year.
If their plan allows for the conversion of this money to a Roth 401(k) account within the plan, this needs to be done prior to Dec. 31, 2021, if the legislation passes as is. Note that any earnings on these after-tax contributions will be taxable upon conversion. If the plan allows for in-service withdrawals in order to roll this after-tax money to an IRA and convert to a Roth, you will want to consider doing this by the end of the year.
If none of these options are available to you, the after-tax contributions would be stuck in the plan until you leave the company. Unless this happens prior to Dec. 31, 2021, you will lose the opportunity to convert this money to a Roth if the proposed legislation passes.
For people who may want to make an after-tax contribution to a traditional IRA and do a backdoor Roth conversion, this also needs to be done by Dec. 31 of this year if this legislation passes.