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Backdoor Roth under proposed tax plan

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  • Backdoor Roth under proposed tax plan

    Are y'all gonna do a backdoor roth first of the year as usual, or wait to see how things shake out under any new tax legislation?

     

    From what I understand, the House plan as currently written doesn't eliminate the Backdoor Roth, but I'm not sure of the consequences of making the move if the door were to be shut with final implementation of the bill - penalties, etc.

     

    Happy holidays everyone.

  • #2
    I think we'll know the answer to these questions in a few short weeks.

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    • #3
      Very unlikely for anything passed to be effective so quickly.

      For relatively small things (well, to the big picture, at least) like the Backdoor Roth, I think trying to stay ahead of the curve is a bit premature. Let the bill get signed before we figure out the ramifications and adjust our sails if need be.

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      • #4
        Been following closely and I haven't heard a word about Backdoor Roth in any of this but if I've missed articles please link.

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        • #5
          I would definitely expect a tax bill this month to be effective Jan 1 2018.

          Have not heard anything about backdoor Roth IRA and plan to proceed as normal on Jan 3.

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          • #6
            Nothing about the backdoor Roth that I've seen, but you may be confusing it with the proposed termination of the option to recharacterize Roth conversions. For those who don't know what I'm talking about, you are allowed up until the due date of the filing of your income tax return to reverse, or "recharacterize". a Roth conversion. That means you have until 10/15/18 to recharacterize a Roth conversion you made at any time during the calendar year 2017. The 2nd step of a backdoor Roth is a conversion but the folks who engage in backdoor Roth transactions are not interested in recharacterizing. (~edit - you actually would want to recharacterize if you did a conversion and then realized you were subject to the pro rata rules.)

            Elimination of the ability to recharacterize would most affect people who convert large sums to Roth IRAs and then decide it was a bad idea (i.e. market drops a lot, don't want to pay the tax, taxable income higher than projected, etc.) For example, we have clients who "overconvert" and then decide how much to recharacterize after we finalize their tax returns. They recharacterize enough to keep them from going over into the next highest bracket.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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