If you think a Roth IRA is beyond your reach because you earn too much, you might want to look into the 'backdoor Roth' strategy.
“A lot of people have been concerned about using this strategy and uncertain about how the IRS would treat it,” said Bob Phillips, a CPA and managing principal of Spectrum Management Group in Indianapolis.
“More people are familiar with it and advisors, tax preparers and CPAs will be more comfortable recommending it to clients,” said Phillips.Tax-efficient savings firstIndividuals who opt for the backdoor Roth should already be maxing out their 401 contributions at work or at least getting the full employer match into their retirement plans, said Jeffrey Levine, a CPA and CEO of BluePrint Wealth Alliance in Garden City, New York.
However, if this person already owns other IRAs with pretax amounts in them, the IRS could levy income taxes based on the overall value of all of those accounts. “Let’s say you have one IRA with a lot of money in it and you create a new IRA to distribute an amount,” he said. “For tax purposes, it’s treated as if the distribution came from both IRAs, so it will be taxable.”
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