back door roth ira

Submitted by gautam shah on Fri, 2024-02-02 11:59

what is income limit to establish back door ROTH? I want to establish this for my adult child who has employer establish 401 and no IRA of his own. can i directly cotribute or he has to fund and i can give him same amount. most adult do not want additional tax deffered or free account to reduce present income i think it is valuable to have additional funds in such ROTH IRA and this way i am passing my wealth



Submitted by William Tuttle on Sat, 2024-02-03 00:47

  • There is no Backdoor Roth in the tax code.
  • It is a very unfortunate slang term for two very legitimate actions defined in the tax code.
  • Contributions to a non-deductible traditional IRA followed by a Roth conversion with little to no tax liability*. Neither of which have an income limit.
  • He has to open the account. Many, but not all IRA custodians would allow you to make direct contributions to his Roth  IRA. If not you could gift him the money for the contributions.
  • You are correct, tax-free distributions in retirement can be very valuable to control your AGI and thus various MAGIs.

*Any pre-tax balances in all traditional SEP and SIMPLE IRA accounts on 12/31 causes prorata taxation of any Roth conversion that year. It is good he has no traditional IRA balance, but if he were to rollover funds from qualified plan to a traditional IRA in the future it would interfere with tax efficient Backdoor Roths.

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