Backdoor Roth IRA

Everyone knows saving for your retirement is important. One attractive option is the Roth IRA. Contributions to a Roth IRA are not deductible in the year they are made as traditional IRAs, but they grow tax free and will not be taxed in retirement when distributions are taken.

For 2017, total IRA contributions (traditional and Roth) are limited to $5,500 ($6,500 if you are age 50 or older).

Unfortunately, not all taxpayers are eligible to make contributions to a Roth IRA. For 2017, your modified AGI must be under $133,000 (single) or $196,000 (married filing jointly). The limits, however, do not apply to a Roth IRA conversion.

Using this strategy, you make non-deductible contributions to your IRA and immediately convert this amount to a Roth IRA. While the conversion is a taxable event, your contribution hasn’t had time to earn income, so the entire conversion is treated as a return of principal and thus, will be tax free.

Your contribution and conversion will have no impact on your income and will not change your tax liability for the year, but you will have saved $5,500 into a Roth IRA that will continue to grow and remain tax free!

If you have any questions about making an IRA contribution, please contact Jaclyn Ellis, CPA at 314.576.1350 or

Jaclyn Ellis, CPA is a manager with BWTP, P.C. Read more about Jaclyn here.

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