Got an email from Fido today linking to their standard, bread-and-butter info on IRAs with a bait-like title: Seven things you may not know about IRAs. Nothing an in-the-know solo-flying saver-investor (three hyphens in a row!) like most of us wouldn't know, but a good hit for the Average Joe, in my opinion.
One thing I was interested to see is point #7, which talks about what to do if above the income threshold for Roth contributions, which we all (most?) know: the non-deducted TIRA contribution then converted to Roth, which we affectionately know as the Backdoor Roth. They basically tell you to do exactly that:
This is in pretty significant contrast to what I've seen several people post about and talk about with friends, with their CPAs telling them this was verboten, despite several "everyone totally does this and the IRS totally doesn't care" rebuttals. I've done it the past two years (since I've been above the AGI threshold), as have most of you for the past however-many years.
However, this is one of the first times I've seen a major financial institution recommend their investors do it. Maybe they leave themselves off the hook by saying you'll owe tax on the earnings between contribution and conversion (which obv should be zero or minimal)? Or maybe because the converted non-deducted amount is still treated differently than directly contributed Roth amounts, and it's not truly "identical?"
So I guess my question is twofold: one, why do some professionals still recommend against the Backdoor Roth, and two, why the heck is this even necessary in the first place?
One thing I was interested to see is point #7, which talks about what to do if above the income threshold for Roth contributions, which we all (most?) know: the non-deducted TIRA contribution then converted to Roth, which we affectionately know as the Backdoor Roth. They basically tell you to do exactly that:
"If you don’t have a traditional IRA you’re still not out of luck. You could open a traditional IRA and make nondeductible contributions, which aren’t restricted by income, then convert those assets to a Roth IRA. If you have no other traditional IRA assets, the only tax you’ll owe is on the account earnings between the time of the contribution and the conversion."
This is in pretty significant contrast to what I've seen several people post about and talk about with friends, with their CPAs telling them this was verboten, despite several "everyone totally does this and the IRS totally doesn't care" rebuttals. I've done it the past two years (since I've been above the AGI threshold), as have most of you for the past however-many years.
However, this is one of the first times I've seen a major financial institution recommend their investors do it. Maybe they leave themselves off the hook by saying you'll owe tax on the earnings between contribution and conversion (which obv should be zero or minimal)? Or maybe because the converted non-deducted amount is still treated differently than directly contributed Roth amounts, and it's not truly "identical?"
So I guess my question is twofold: one, why do some professionals still recommend against the Backdoor Roth, and two, why the heck is this even necessary in the first place?
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