The IRS recently published some great news, especially for high income earners, regarding “back-door” Roth IRAs.

For those of you that are unfamiliar with this term, the back-door Roth allows high income earners to bypass the Roth IRA contribution income limits. It works like this: if you are under 70.5 years of age, you can make a nondeductible traditional IRA contribution. For 2018, you can contribute up to $5,500 ($6,500 if you are 50 or over). Your high income is not a problem as there are no income limits on nondeductible traditional IRA contributions. Next, you convert your 2018 traditional IRA contribution to a Roth IRA. This allows your money to grow tax free in your Roth IRA.

Earlier this month, Donald Kieffer Jr., a tax law specialist in IRS’s Tax Exempt and Government Entities Division, was quoted as saying that while there is nothing specific in the law that says a back-door Roth contribution is allowed. “In this one that we’re talking about, it’s allowed under the law.” He was referring to the conference report for the Tax Cuts and Jobs Act where Congress specifically said that the conversion technique is allowed. Kieffer stated that one of the things that made IRS cautious about the strategy was its name. The term “back-door” worried them.

This is the first time that IRS has officially stated that the back-door Roth strategy is allowed and will not be challenged.

Richmond Brothers is very familiar with this strategy. In fact, we recently appeared on a JTV segment discussing this as well (view it here). Our team has utilized it personally and with clients where and when appropriate. If you have questions about how a back door Roth IRA and how it could work for you, please reach out to us!