From Melinda May, CPA | Featherstone
A Fredericksburg Today Partner
Behind the back door
- Suppose a taxpayer with $26,000 of pretax money in a traditional IRA makes a $6,500 nondeductible contribution to a new traditional IRA.
- That brings the IRA total to $32,500, of which $6,500 (20 percent) is after-tax money.
- Then, a Roth IRA conversion of any amount will be 20 percent tax-free and 80 percent taxable, regardless of which IRA is used for the Roth conversion.
- Such back-door Roth conversions may be most appealing to high income taxpayers with little or no pretax money in traditional, SEP, or SIMPLE IRAs.