September 2015


Back-Door Roth IRA conversions.

Contributions to a Roth IRA aren’t deductible. The amount that can be contributed to a Roth IRA is subject to the same limitations as apply to regular IRAs. Qualified distributions from a Roth IRA aren’t included in income, and other distributions are treated as a return of investment to the extent of contributions to Roth IRAs.

A taxpayer is permitted to make a contribution to a Roth IRA only if the taxpayer’s modified adjusted gross income (“MAGI”) is less than a specified limit that is indexed for inflation. For example, for 2015, a married taxpayer filing a joint return is permitted to make a full contribution to a Roth IRA if the taxpayer’s MAGI is less than $183,000, and the contribution limit is phased out over the range of $183,000 to $193,000.

However, there are currently no income limits on a person’s ability to make nondeductible contributions to a regular IRA or to convert money from a regular IRA to a Roth IRA. A taxpayer who converts an amount held in a traditional IRA must include the entire converted amount in their taxable income. That is, the amount is includible in taxable income to the extent it is not a return of basis.

This ability to convert money from a regular IRA to a Roth IRA provides a “back-door” to a Roth IRA for those taxpayers who cannot otherwise contribute to a Roth IRA because their income is over the limit. That is, a taxpayer who is not able to make a contribution to a Roth IRA can nonetheless put just as much into a nondeductible IRA and then convert that nondeductible IRA into a Roth IRA (and pay tax on the amount converted).

President Obama’s 2016 budget proposal provides that future Roth conversions be limited to pre-tax money only. Thus, after-tax amounts (i.e., nondeductible contributions, which are attributable to basis) held in a traditional IRA could not be converted to Roth IRA amounts. A similar rule would apply to amounts held in eligible retirement plans. This proposal would effectively kill most back-door Roth IRAs.

For more information about the President’s 2016 budget proposal, go to

What Is The Estate Tax?
The estate tax is one component of the federal transfer tax system, which also includes the gift tax and the generation-skipping transfer tax.
The Trust As Part Of An Estate Plan
To the layperson, trusts can appear complicated. People often think trusts are only for the very wealthy. In reality, trusts can be useful for people of all income levels.
What Is Probate?
Probate is the legal process that takes place after someone dies of proving the validity of a will or establishing who is entitled to receive the decedent’s property under state intestate succession laws if there is no will.
Who Are The Parties Involved In A Trust?
The person who creates a trust is called the creator, the settlor, or the grantor. The trustee is the person or persons who hold title to the trust property in their name.
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Lawrence Israeloff, Esq., CPA, CFP®


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