Call it a reversal of fortunes.

Since the spring of last year, IRA impresario Ed Slott has been warning advisors not to counsel investors to create backdoor Roth IRAs—a vehicle that allows even high-income investors to skirt IRS income limits to sock away large sums in the attractive, tax-free accounts.

Slott, the founder and president of Ed Slott & Company LLC, had reason to be concerned. He was worried that Congress was on the precipice of eliminating backdoor Roths, he told nearly 900 advisors who attended Financial Advisor magazine’s Advisor Growth Summit in late March.

At the time, he was right. Last May, the House Ways and Means Committee unanimously passed Secure 2.0—the Securing a Strong Retirement Act—and the bill seemed headed for an easy, bipartisan layup in both the House and Senate.

It was clear that lawmakers wanted to put the backdoor Roth (and the massive tax benefits the workaround creates) on the extinction list.

Fast-forward to 2022, and the legislation is stalled, waylaid by the Build Back Better Plan and looming elections.

“I said previously don’t do backdoor Roth IRAs, but I don’t feel that way anymore because the bill never went anywhere,” Slott said.

“People keep asking, ‘Can we do that?’ Right now, you can. Even if Secure 2.0 became law, if they want to ban backdoor Roths they’ll have to do it prospectively as of next January 1,” he said.

While investors have to pay income tax on their Roth conversions, the assets grow tax-free, making Roths one of the last vehicles investors can use to achieve massive tax advantages not only in their lifetimes, but also for their heirs.

To avoid future taxation, the backdoor workaround allows even high-income individuals to make non-deductible contributions to a traditional IRA and then immediately convert that account to a backdoor Roth IRA.

First « 1 2 » Next