Congratulations to Richard M. Hoffman, CPA/CGMA, Member, Levine, Jacobs & Company, L.L.C., my client who was recently interviewed on Jersey Central, the morning drive program which airs on WCTC-AM radio. The topic was Roth IRA and some upcoming changes anyone who uses these funds should be aware of.
President Obama’s 2016 budget proposal provides that future Roth conversions be limited to pre-tax money only. Thus, after-tax, nondeductible amounts (those attributable to basis) held in a traditional IRA could not be converted to Roth amounts. A similar rule would apply to amounts held in eligible retirement plans. This proposal would effectively kill most back-door Roths.
It is unclear as to whether this proposal will pass, or when the effective date will be, so if a taxpayer is contemplating this funding method, it should be done as soon as possible.
According to Richard Hoffman, “For taxpayer’s who would like to contribute to a Roth IRA, but are not permitted to do so because of their income limitation, a “back door’ contribution is still available. Since there are no income limitations on funding a “nondeductible IRA”, taxpayers can make a maximum contribution to a nondeductible account and then elect to convert the account to a “Roth IRA.”