Question: I have exceeded the ability to make a Roth IRA contribution this year. Is it still possible to make Roth IRA contributions from an employer-sponsored retirement plan under the TCJA (new tax act)?
Answer: Clients who are ineligible to make Roth IRA contributions, because they have too much income, often can effectively still do so through the “back door” by contributing funds to a traditional IRA or 401(k) plan, then converting the funds to a Roth IRA. Some questioned whether this tactic would be available under the Tax Cut and Jobs Act. It is still available.
Since 2010, there has been no income limit on eligibility to convert a traditional IRA into a Roth IRA. There is no limit on the amount that can be converted to a Roth IRA. So, by contributing funds to a traditional IRA or 401(k) first, then moving the funds to a Roth IRA, it is possible to get around the contribution limits to the Roth IRA.
Comment: Stanley, 53, is employed and has income too high to make direct contributions to a Roth IRA. However, he can make contributions to his traditional IRA of up to $6,500 per year (for age 50 and older) and then convert the funds to a Roth IRA. Thus, he can move $6,500 into a Roth IRA every year, indirectly.
Much larger Roth contributions may be available to persons who participate in 401(k) plans that allow in-service rollovers to IRAs while working.
As always, if you have any questions or would like to learn more, please contact Steve Shane at firstname.lastname@example.org or .
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