Congress let people convert traditional retirement accounts to Roths immediately to grab tax revenue upfront. Tax lawyers spotted the loophole and started using it for clients. What was meant as a quick cash grab became a permanent tax planning tool.
Congress wanted to raise money and they said, hey, if these people have traditional accounts and they want to convert to Roth, let's let them do that now because they have to take that into income and they pay tax on a Roth conversion. And what can we do as Congress? We can spend that money. We don't want to wait until they're 60 and they take traditional distributions later down the road. That's some other senator or congressman that gets to spend that money. I want to spend that money. I'm in Congress now, baby. Little did they know they created The loophole. Exactly. Magically, the loophole. And us tax lawyers were like, bingo.
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