Open a non-deductible Trad IRA then covert to a Roth immediately
Does tax law allow someone who is ineligible to annually contribute to a Roth IRA due to income open a non-deductible Traditional IRA then immediately convert it to a Roth IRA? This would obviously then allow high income earners to “Game The System”.
Permalink Submitted by Alan - IRA critic on Thu, 2014-03-20 18:12
Yes, current tax law permits this and a large number of these transactions are done every year without any challenge from the IRS. Of course, if the person has a pre tax IRA balance, those conversions are mostly taxable under the Form 8606 pro rate rules.
Permalink Submitted by mk foss on Thu, 2014-03-20 18:17
This strategy is known as the “back door Roth” – if you Google that, you may find more information. People have been doing this since 2010 when Roth conversions became available to all. IRS has not commented one way or another about this that I’ve seen. The difficulty is that if the IRA owner has an existing IRA besides the new nondeductible one, there will be some tax on the conversion.