Backdoor IRA

The almost unavoidable certainty of future increasing investment taxes–some of which is already occurring–has prompted a new wave of IRA rollover techniques for earning tax-free income. The backdoor IRA is one such method. A backdoor IRA allows for movement of monies from taxable, traditional retirement vehicles into a Roth IRA.

This scenario will allow joint filers who report a joint adjusted gross in excess of $250,000 to effectively avoid tax increases set to occur in the near future. It also allows higher net worth individuals to invest using a Roth account where they were previously locked out due to income restraints. Previously, income above a specified threshold precluded some single and joint filers from even obtaining a Roth IRA all together. Now taxpayers, regardless of their adjusted income can perform a rollover to a Roth IRA.

When performing such a rollover, proper steps must be taken to avoid any unnecessary taxes. For instance, specific steps must be taken to avoid prorated taxes based on the amount held in existing retirement accounts. This process requires some somewhat involved, but completely legal work-arounds.

The law is very clear on backdoor Roth IRAs. By filing the proper forms, investors are better qualified to avoid unnecessary taxes on investment income in their retirement accounts. For more information on setting up your own backdoor IRA, please contact us directly.