Articles from The Mediator

Backdoor to Roth IRAs

Designed to help the middle-class, Roth IRAs and Roth 401(k)s allow you to invest after-tax money that grows completely tax-free. Very cool.

Since they weren’t intended for the wealthy, Roth IRAs aren’t directly available to high earners. But high earners can convert non-deductible IRAs into Roth IRAs through the ‘backdoor’, to cut future taxes. And though Roth 401(k)s are available to high earners, with limitations, some use the ‘mega back-door’ to exceed the limitations and convert large sums to Roth 401(k)s to cut their future taxes.

After much press about these backdoors, Congress recently considered (1) limiting most Roth conversions and (2) no longer allowing high earners to contribute to Roths altogether.

So for higher earners, this issue bears careful watching. Even though the changes haven’t become law, some high earners are now converting, or are considering converting, to Roths.

For advice related to your specific situation, it’s best to consult with your tax professional.

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