Congress made several changes to IRA rules in 2020 and is considering more in the near future. Legislators are looking to end the so-called “back door Roth IRA” and “mega back door Roth IRA” strategies. Currently, the back door Roth IRA conversion allows an individual to make a nondeductible, after-tax, contribution to a traditional IRA (which can be made regardless of high income) and then convert it tax-free (since no deduction was taken) to a Roth IRA. This is a way that higher earners can avoid the Roth IRA contribution limits and fund a Roth IRA.
We are recommending that clients who have a Traditional IRA strongly consider the idea of converting some or all of that IRA to a Roth IRA this year for two reasons. Income tax brackets are still the lowest they have been since WWII, and the current administration and Congress want to raise them. Equity markets are looking good and not facing any real headwinds as long as corporate earnings continue to rise and other asset classes are not offering better opportunities. Therefore, the future looks good for increasing account values and higher tax brackets going forward.
Please contact us if you would like to discuss your personal situation.
We wish all of you a happy Thanksgiving. We are grateful for you!
