TCJA Tax Reform Sticks It to Business Start-Ups That Lose Money
Good news. The Tax Cuts and Jobs Act (TCJA) did
not harm the backdoor Roth strategy.
As you likely know, the Roth IRA is a terrific way
to grow your wealth with a minimum tax downside
because you pay the taxes up front and then, with
the proper holding period, pay no taxes after that.
But if you earn too much, you’re completely barred
from contributing to a Roth IRA unless you can use
the backdoor Roth technique, which involves
making a nondeductible contribution to a traditional IRA and then rolling that money into a Roth.
The backdoor Roth strategy has been around for a
good nine years, and it has experienced no trouble
that we are aware of, so we think it’s a good
strategy. We also like the recent notations in the
legislative history and the comments from the IRS
spokesperson that show approval of the strategy.
Keep in mind that with some planning, you can
avoid any taxes on the rollover. For example, if you
have an existing traditional IRA, you can move
those monies to your qualified plan to avoid having the backdoor strategy trigger some taxes. And if you have no traditional IRA, the nondeductible contribution to the traditional IRA and the subsequent rollover to the Roth IRA triggers no taxes.
Want to know more? Have some tax questions of your own? Get in touch with us and we’ll guide you thru the tax and accounting process.