Is 2021 The Last Chance To Do A Back-Door Roth IRA?

Roth IRAs provide the ability to make an after-tax contribution and never pay tax on the earnings.  Unfortunately, taxpayers whose Modified Adjusted Gross Income is over $208,000 for joint returns and $140,000 for singles are not allowed to make direct contributions to a Roth IRA. 

For many years, taxpayers have gotten around this limitation by making after-tax contributions to a traditional IRA and then converting it to a Roth IRA.  This works particularly well for those with no traditional IRA balances. 

Unfortunately, the House version of the Build Back Better Act, passed November 19, 2021, puts a stop to this technique. If the House version becomes law, Back-door Roth IRAs will no longer be allowed after 2021.  The bill prohibits after-tax contributions in qualified plans and after-tax IRA contributions from being converted to a Roth IRA after December 31, 2021. 

Interested taxpayers who have yet to make a back-door Roth contribution in 2021 should take note.  You may wish to take advantage of this provision in calendar 2021 to make sure you can take full advantage of the technique in the event does become law.  Contact your DWD CPA for more information.  

Contributed By: Mark Westerhausen, CPA | Director of Tax Services | DWD CPAs & Advisors