Chase’s Pick: “Backdoor Roth IRAs: Retirees, Make the Most of a Roth’s Back Door”

Published by Kiplinger.com

Written by David Rodeck

“The Roth IRA is that rare prize in the U.S. Tax code — a way to earn tax-free income. Savers using Roth IRA accounts withdraw their investment gains completely tax-free in retirement. But because the government designed this generous tax break for the middle class, the Roth has strict income limits for who can use it. In 2024, Roth IRA limits mean you cannot contribute directly to a Roth IRA if you’re single and have a modified adjusted gross income of more than $161,000 or are married with joint modified AGI over $240,000.”

“Wealthier investors, however, can still access these accounts indirectly through a backdoor Roth IRA.

“This strategy gives a workaround for the Roth IRA income restrictions,” says Rob Burnette, a financial adviser and tax preparer at Outlook Financial Center in Troy, Ohio.

“At least it does for now. Reports of billionaires funding Roths through the back door have put this strategy on Congress’s radar, with some Democratic lawmakers looking to restrict the practice or even abolish it altogether. However, “the IRS has said they’re OK with this move short of new legislation formally blocking it,” says Wade Pfau, a professor of retirement income at The American College of Financial Services.”

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