IRS Okays Backdoor Roth IRA

The Backdoor Roth IRA is a strategy available to someone who wants to contribute to a Roth IRA but whose income exceeds the contribution limit. The person can make a nondeductible contribution to a traditional IRA, and then convert that amount to a Roth IRA. There should be no income taxes on the conversion, if the person doesn’t have any other amounts in traditional IRAs. There are details I won’t discuss here.

Some tax advisors have argued that the IRS could disallow the transaction by claiming all the actions were part of one transaction that was an attempt to circumvent the limits on roth iras. In the committee report accompanying the Tax Cuts and Jobs Act, Congress included language that attempted to make clear that the Backdoor Roth IRA is permitted. In a webcast (subscription required), an IRS official said that the IRS believes the Backdoor IRA is legal and it doesn’t plan to challenge it or issue any guidance about it.