Q & A and Tips on Accounting, Taxes and Personal Finance.

Backdoor Roth IRA

May 14, 2019 | By More

Roth IRAGood news. The Tax Cuts and Jobs Act (TCJA) did not harm the backdoor Roth strategy.

The Roth IRA is a terrific way to grow your wealth with a minimum tax downside because you pay the taxes up front and then, with the proper holding period, pay no taxes after that.

But if you earn too much, you’re completely barred from contributing to a Roth IRA unless you can use the backdoor Roth technique, which involves making a nondeductible contribution to a traditional IRA and then rolling that money into a Roth.

The backdoor Roth strategy has been around for a good nine years, and it has experienced no trouble that I am aware of, so I think it’s a good strategy. I also like the recent notations in the legislative history and the comments from the IRS spokesperson that show approval of the strategy.

Keep in mind that with some planning, you can avoid any taxes on the rollover. For example, if you have an existing traditional IRA, you can move those monies to your qualified plan to avoid having the backdoor strategy trigger some taxes. And if you have no traditional IRA, the nondeductible contribution to the traditional IRA and the subsequent rollover to the Roth IRA triggers no taxes.

Contributed by John L. Cox – Certified Public Accountant
John L. Cox, CPA, PC is located in Bowie, Maryland. For more information or to contact John L. Cox, visit http://www.bookkeepinghelp.com/business/441246-20715/john-l-cox-cpa-pc/bowie-md

Article information should not be used exclusively to make legal, financial or tax decisions. Because laws and rules can change frequently, topics may not always be updated to reflect these changes or may not apply to your unique situation. It’s prudent to seek out the advice of a professional for your specific needs.

Tags: ,

Category: Taxes

Comments are closed.