“Backdoor” and “mega-backdoor” Roth accounts and other tools of wealthy clients for building giant nest eggs without paying taxes, could be in danger.

Congress is considering banning both kinds of Roth strategies starting next year. Lawmakers are also debating requiring huge distributions from the accounts and curtailing contributions to vehicles that have more than $10 million in holdings. Other proposed measures would kick in further in the future.

Combined, the limitations could eventually affect distributions, contributions and tax advantages for wealthy Roth owners.

Roth conversions allow for converting funds in a pre-tax individual retirement account or 401(k) to an after-tax Roth IRA. Investors owe tax on the converted money but the Roth IRA then grows tax-free. Democratic lawmakers want to end Roth conversions with pre-tax money for the wealthy.

Proposals call for ending such conversions for those whose adjusted gross income exceeds $400,000 (for single filers) or $450,000 (for married filing jointly), starting in 2032.

But a special kind of account is grabbing headlines. Though the conventional version of the Roth has income limits too low to allow use by wealthy clients, backdoor Roths have been a popular legal workaround that enables high-income investors to sidestep income restrictions.

In a backdoor Roth, investors who earn too much to contribute directly to a Roth IRA make after-tax contributions to a traditional IRA and then convert the contributed amount to a Roth IRA. The “mega backdoor Roth” conversion is similar but starts with a workplace retirement plan such as a 401(k) or 403(b).

Changes are under discussion to ban backdoor and mega-backdoor Roths after Dec. 31.

Some claim that Democrats’ Roth-related proposals would impact only a few Roth owners and that a ban on future Roth contributions for wealthy account holders would have an negligible effect on the overall value of such accounts. Proponents counter that the measure would go far toward helping fund President Biden’s $3.5 trillion American Families Plan.

Nevertheless, it’s apparent that chances to take advantage of this “powerful planning technique” may be disappearing, said Kara Harmon, partner at Moneta in St. Louis.

“Another newer concept that has been discussed is limiting the amount a person can keep in a retirement account,” said Jason Field, financial advisor at Van Leeuwen & Company in Princeton, N.J.

Media reports that PayPal co-founder Peter Thiel grew his Roth IRA from barely four figures to billions in just 20 years fueled the proposal in Congress. “This [proposal] has been dubbed the ‘Peter Thiel Rule’ due to his enormous amount of wealth in a Roth IRA that will never be taxed again,” Field said.

“The proposed limit would be $10 million. If the account is in excess of $10 million, the government wants them to withdraw half of the value each year until the account is under $10 million. This would help accelerate tax paid on these large retirement accounts,” he added.

Though details are still coming on the legislation, clients can take some mitigating steps now and in the future, advisors said.

Taxpayers above the income threshold and below the aggregate retirement account threshold will have 10 years to perform Roth conversions (the proposed measures take effect in 2032), according to a primer from Robertson Stephens Wealth Management in New York and Mallon FitzPatrick, managing director and principal.

It’s logical that if Roth use is curtailed for wealthy clients, other tax-advantaged retirement plans will crop up by the time legislation is enacted or soon after. The hunt for accounts friendly to tax situations will likely lead some to health savings accounts.

Still, it’s a good idea to complete backdoor Roth conversions before year-end and to begin Roth conversions this year to take advantage of currently lower income tax rates, and consider adding more to employer plans starting in 2022, FitzPatrick said.

Harmon’s top priority for clients is reviewing 401(k) balances to learn if after-tax contributions exist and to determine “what level of flexibility the plan offers to address a Roth conversion while a plan participant is still employed,” she said.