Nondeductible IRA

[Randall]

Just to reassure myself, there is no limit on income to contribute $6000 to a nondeductible IRA?  Client wants to contribute, then convert to Roth.  Something about investor strategy called a backdoor Roth.  Ha.

[Lion EA]

Did he bring you a magazine article?!

[Randall]

50 minutes ago, Lion EA said:

Did he bring you a magazine article?!

Sent me a link!!!!!

[jklcpa]

As far as I know, "Backdoor Roths" are still allowed for 2022 and so far for 2023 too. It was tried to be shut down with legislation last year but did not pass in the Senate iirc.

Taxpayer must obey the rules for contribution limits (age-related limit, him/her/spouse covered by retirement plan, and must have compensation to allow the contribution) but should be able to contribute and designate as nondeductible. 

The nondeductible contribution is then immediately converted to a Roth before any earnings in the Trad IRA, which utilizes a loophole in the tax law that allows the higher income taxpayer to circumvent the income limits for contributing directly to a Roth.

I have clients that have been doing this for years. 

Does anyone have a cite to the contrary that says this has been shut down?

[Lion EA]

Remember to ask client if they have any other IRA accounts that might have deductible contributions in them, so you can allocate deductible vs nondeductible to the conversion. Your client might think that only this new contribution to a nondeductible account is being converted, even if he has previous deductible contributions to Traditional IRA accounts.

[jklcpa]

Correct. Mine have -0- balance in the trad iras because their financial advisors started from the beginning with these higher income individuals that didn't have IRAs at all, and then have always immediately converted to the Roths.

[jklcpa]

So to be clear, Randall's client may be able to do this.

Randall, you are correct that the income limit doesn't apply for contributing the maximum allowed for his/her age AND IF is designated as nondeductible as long as the person actually does have compensation that would qualify him/her to contribute in the first place.  The income limitation comes into play when they want to deduct the traditional IRA.

[Randall]

Thanks for the comments.

 

[mcbreck]

The Roth IRA conversion has NOT been stopped.