Back-Door Roth IRAs
The Ever-Changing World of Taxes
In our October 17, 2017 post, we cautioned taxpayers who used the back door Roth (converting a traditional IRA to a Roth IRA) that the IRS could challenge the use of this strategy claiming that it violated the step transaction doctrine. For those taxpayers who are not familiar as to why a taxpayer would attempt to convert a traditional IRA to a Roth IRA using the back-door strategy, please read our October 17, 2017 post.
The good news is that the IRS has now officially stated that they are ok with the back-door Roth strategy. In a Tax Talk Today webcast, Donald Kieffer Jr., tax law specialist (employee plans rulings and agreements), IRS Tax-Exempt and Government Entities Division, said the back-door Roth is allowed under the law. The IRS position is based on the conference report for the Tax Cuts and Jobs Act, Congress weighed in and said “Although an individual with AGI exceeding certain limits is not permitted to make a contribution directly to a Roth IRA, the individual can make a contribution to a traditional IRA and convert the traditional IRA to a Roth IRA.” Since Congress writes the tax law and congressional intent is a big part of interpreting the law, it was now pretty clear that the back-door Roth is a viable planning strategy.
However, while the back-door strategy is a viable planning strategy, taxpayers still need to understand the tax law to avoid unexpected tax consequences. Some of the tax pitfalls include: [Read more…] about IRS Approves Back-Door Roth IRAs